Basic Statistics for Business & Economics (Business Statistics)

Bas i c S ta t

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c s for

Business & Economics Fifth Edition

Douglas A. Lind Coastal Carolina University and The University of Toledo

William C. Marchal The University of Toledo

SamuelA. Wathen Coastal Carolina University

Boston Burr Ridge, IL Dubuque, IA Madison, WI New York San Francisco st. Louis Bangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto

The McGraw'HiII Companies

BASIC STATISTICS FOR BUSINESS AND ECONOMICS International Edition 2006 Exclusive rights by McGraw-Hill Education (Asia), for manufacture and export. This book cannot be re-exported from the country to which it is sold by McGraw-Hill. The International Edition is not available in North America.

Published by McGraw-HilI/Irwin, a business unit of The McGraw-HilI Companies, Inc. 1221 Avenue of the Americas, New York, NY 10020. Copyright © 2006, 2003, 2000,1997,1994 by The McGraw-HilI Companies, Inc. All rights reserved. No part of this publication may be reproduced or distributed in any fonn or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-HilI Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

10 09 08 07 06 05 04 03' 20 09 08 07 06 05 CTF ANL

Library of Congress Control Number: 2004057810

When ordering this title, use ISBN 007-124461-1

Printed in Singapore

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The McGraw-Hili/Irwin Titles Business Statistics

Doane, LearningStats CD-ROM, First Edition

Sahai and Khurshid, Pocket Dictionary of Statistics, First Edition

Aczel and Sounderpandian, Complete Business Statistics, Sixth Edition

Gitlow, Oppenheim, Oppenheim, and Levine, Quality Management: Tools and Methods Techniques, Third Edition

Siegel, Practical Business Statistics, Fifth Edition

ALEKS Corp., ALEKS for Business Statistics Alwan, Statistical Process Analysis, First Edition Bowerman and O'Connell, Business Statistics in Practice, Third Edition Bowerman and O'Connell, Essentials of Business Statistics, Second Edition 'Bryant and Smith, Practical Data Analysis: Case Studies in Business Statistics, Volumes I and II Second Edition; Volume III, First Edition Cooper and Schindler, Business Research Methods, Ninth Edition Delurgio, Forecasting Principles and Applications, First Edition Doane, Mathieson, and Tracy, Visual Statistics, Second Edition, 2.0

Lind, Marchal, and Wathen, Basic Statistics for Business and Economics, Fifth Edition Lind, Marchal, and Wathen, Statistical Techniques in Business and Economics, Twelfth Edition Merchant, Goffinet, and Koehler, Basic Statistics Using Excel for Office XP, Fourth Edition Merchant, Goffinet, and Koehler, Basic Statistics Using Excel for Office 2000, Third Edition Kutner, Nachtsheim, Neter, and Li, Applied Linear Statistical Models, Fifth Edition Kutner, Nachtsheim, and Neter, Applied Linear Regression Models, Fourth Edition

Wilson, Keating, and John Galt Solutions, Inc., Business Forecasting, Fourth Edition Zagorsky, Business Information, First Edition

Quantitative Methods and Management Science 'Bodily, Carraway, Frey, and Pfeifer, Quantitative Business Analysis: Text and Cases, First Edition Hillier and Hillier, Introduction to Management Science: A Modeling and Case Studies Approach with Spreadsheets, Second Edition 'Available only on Primis at www.mhhe.com/primis

111

To Jane, my wife and best friend, and to our sons and their wives, Mike (Sue), Steve (Kathryn), and Mark (Sarah). Douglas A. Lind .

To Andrea, my children, and our first grandchild, Elizabeth Anne. William G. Marchal

To my wonderful family: Isaac, Hannah, and Barb. Samuel A. Wathen

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·ANote to the Student

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We have tried to make this material "no more difficult than it needs to be." By that we mean we always keep the explanations practical without oversimplifying. We have used examples similar to those you will encounter in the business world or that you encounter in everyday life. When you have completed this book, you will understand how to apply statistical tools to help make business decisions. In addition, you will find that many of the topics and methods you learn can be used in other courses in your business education, and that they are consistent with what you encounter in other quantitative or statistics electives. There is more data available to a business than there has been in previous years. People who can interpret data and convert it into useful information are not so easy to find. If you thoughtfully work through this text, you will be well prepared to contribute to the success and development of your company. Remember, as one of the authors read recently in a fortune cookie, "None of the secrets of success will work unless you do."

Learning Aids We have designed the text to assist you in taking this course without the anxiety often associated with statistics. These learning aids are all intended to help you in your study. Objectives Each chapter begins with a set of learning objectives. They are designed to provide focus for the chapter and to motivate learning. These objectives indicate what you should be able to do after completing the chapter. We include a photo that ties these chapter objectives to one of the exercises within the chapter. Introduction At the start of each chapter, we review the important concepts of the previous chapter(s) and describe how they link to what the current chapter will cover. Definitions Definitions of new terms or terms unique to the study of statistics are set apart from the text and highlighted. This allows for easy reference and review. Formulas Whenever a formula is used for the first time, it is boxed and numbered for easy reference. In addition, a formula card that summarizes the key formulas is bound into the text. This can be removed and carried for quick reference as you do homework or review for exams. Margin Notes There are concise notes in the margin. Each emphasizes the key concept being presented immediately adjacent to it. Examples/Solutions We include numerous examples with solutions. These are designed to show you immediately, in detail, how the concepts can be applied to business situations. Statistics in Action Statistics in Action articles are scattered throughout the text, usually about two per chapter. They provide unique and interesting applications and historical insights into statistics. Self-Reviews Self-reviews are interspersed throughout the chapter and each is closely patterned after the preceding Example/Solution. They will help you

VI

A Note to the Student

Vll

monitor your progress and provide immediate reinforcement for that particular technique. The answers and methods of solution are located at the end of the chapter. Exercises We include exercises within the chapter, after the Self-Reviews, and at the end of the chapter. The answers and method of solution for all oddnumbered exercises are at the end of the book. For most exercises with more than 20 observations, the data are on the CD-ROM in the text. Chapter Outline As a summary, each chapter includes a chapter outline. This learning aid provides an opportunity to review material, particularly vocabulary, and to review the formulas. Web Exercises Almost all chapters have references to the Internet for companies, government organizations, and university data sets. These sites contain interesting and relevant information to enhance the exercises at the end of the chapters. Dataset Exercises In most chapters, the last four exercises refer to four large business data sets. A complete listing of the data is available in the back of the text and on the CD-ROM included with the text.

Supplements The Student CD, packaged free with all copies of the text, features self-graded practice quizzes, software tutorials, PowerPoint slides, the data files (in MINITAB and Excel formats) for the end-of-chapter data and for exercises having 20 or more data values. Also included on the CD is an Internet link to the text website and to the websites listed in the Web exercises in the text. MegaStat and Visual Statistics are included. MegaStat provides software that enhances the power of Excel in statistical analysis. Visual Statistics is a software program designed for interactive experimentation and visualization. A comprehensive Study Guide, written by Professor Walter Lange of The Univer.sity of Toledo, is organized much like the textbook. Each chapter includes objectives, a brief summary of the chapter, problems and their solution, self-review exercises, and . assignment problems. The Online Learning Center includes online content for assistance and reference. The site provides chapter objectives, a summary, glossary of key terms, solved problems, downloadable data files, practice quizzes, PowerPoint, webJinks and much more. Visit the text website at http://www.mhhe.com/lindbasics5e. . ALEKS for Business Statistics (Assessment and Learning in Knowledge Spaces) is an artificial intelligence based system that acts much like a human tutor and can provide individualized assessment, practice, and learning. By assessing your knowledge, ALEKS focuses clearly on what you are ready to learn next and helps you master the course content more quickly and clearly. You can visit ALEKS at www.business.aleks.com Douglas A. Lind William G. Marchal Samuel A. Wathen

Preface

The objective of Basic Statistics for Business and Economics is to provide students majoring in management, marketing, finance, accounting, economics, and other fields of business administration with an introductory survey of the many applications of descriptive and inferential statistics. While we focus on business applications, we also use many problems and examples that are student oriented and do not require previous courses. When Professor Robert Mason wrote the first edition of this series of texts in 1967 locating relevant business data was difficult. That has changed! Today locating data is not difficult. The number of items you purchase at the grocery store is automatically recorded at the checkout counter. Phone companies track the time of our calls, the length of calls, and the number of the person called. Credit card companies maintain information on the number, time and date, and amount of our purchases. Medical devices automatically monitor our heart rate, blood pressure, and temperature. A large amount of business information is recorded and reported almost instantly. CNN, USA Today, and MSNBC, for example, all have websites where you can track stock prices with a delay of less than twenty minutes. Today, skills are needed to deal with the large volume of numerical information. First, we need to be critical consumers of information presented by others. Second, we need to be able to reduce large amounts of information into a concise and meaningful form to enable us to make effective interpretations, judgments, and decisions. All students have calculators and most have either personal computers or access to personal computers in a campus lab. Statistical software, such as Microsoft Excel and MINITAB, is available on these computers. The commands necessary to achieve the software results are available in a special section at the end of each chapter. We use screen captures within the chapters, so the student becomes familiar with the nature of the software output. Because of the availability of computers and software it is no longer necessary to dwell on calculations. We have replaced many of the calculation examples with interpretative ones, to assist the student in understanding and interpreting the statistical results. In addition we now place more emphasis on the conceptual nature of the statistical topics. While making these changes, we have not moved away from presenting, as best we can, the key concepts, along with supporting examples. The fifth edition of Basic Statistics for Business and Economics is the product of many people: students, colleagues, reviewers, and the staff at McGraw-Hili/Irwin. We thank them all. We wish to express our sincere gratitude to the reviewers: Jodey Lingg City University Miren Ivankovic Southern Wesleyan University Michael Bitting John Logan College Vadim Shilov Towson University James Dulgeroff San Bernardino Valley College

VIII

Gordon Johnson California State University Northridge Andrew Parkes University of Northern Iowa Abu Wahid Tennessee State University William F. Younkin University of Miami Michael Kazlow Pace University

ix

Preface

Jim Mirabella Webster University John Yarber, Jr. Northeast Mississippi Community Col/ege

Stanley D. Stephenson Texas State University-San Marcos Hope Baker Kennesaw State University

Their suggestions and thorough review of the previous edition and the manuscript of this edition make this a better text. Special thanks go to a number of people. Dr. Jacquelynne Mclellan of Frostburg University and Lawrence Moore reviewed the manuscript and checked exercises for accuracy. Professor Walter Lange, of the University of Toledo, prepared the study guide. Dr. Temoleon Rousos checked the study guide for accuracy. Dr. Samuel Wathen, of Coastal Carolina University, prepared the test bank. Professor Joyce Keller, of St. Edward's University, prepared the PowerPoint Presentation. Ms. Denise Heban and the authors prepared the Instructor's Manual. We also wish to thank the staff at McGraw-Hili/Irwin. This includes Richard T. Hercher, Jr., Executive Editor; Christina Sanders, Developmental Editor; Douglas Reiner, Marketing Manager; James Labeots, Project Manager, and others we do not know personally, but who made valuable contributions.

Brief ,Contents

1 What Is Statistics?

2 3 4 5

1

Describing Data: Frequency Distributions and Graphic Presentation Describing Data: Numerical Measures

57

Describing Data: Displaying and Exploring pata A SUlVey of Probability Concepts

~().!

6 Discrete Probability Distributions .

150

7 Continuous Probability Distributions

8

185

Sampling Methods and the Central Umit Theorem

9 Estimation and Confidence Intervals

10 11 12 13 14 15

276

Two-Sample Tests of Hypothesis

312

344

Analysis of Variance

Linear Regression and Correlation

374

Multiple Regression and Correlation Analysis Chi-Square Applications

Index

421

464

488

Answers to Odd-Numbered Chapter Exercises Photo Credits

211

245

One-Sample Tests of Hypothesis

Appendixes

552

553

CD Chapters • Statistical Quality Control • Time Series and Forecasting

x

93

525

23

Contents

Chapter

Relative Frequency Distribution

Introduction

Exercises

1

1 What Is Statistics? 2

Histogram

What Is Meant by Statistics? Types of Statistics

Exercises

7

Nominal-Level Data

Exercises

Interval-Level Data

12

Bar Charts

43 44

46

Chapter Outline 47

14

Chapter Exercises

Misleading Statistics

15

exercises.com

15

Graphs Can Be Misleading

53

16

17 19

Chapter

Introduction

Chapter Exercises 19

58

The Population Mean

20

The Sample Mean

21

60

Exercises Exercises

2 Describing Data: Frequency Distributions and Graphic Presentation 23

61

62

The Weighted Mean

Chapter

63

64

The Median 64 The Mode 65 Exercises

24

67

Software Solution

Constructing a Frequency Distribution

25

Class Intervals and Class Midpoints

29

29

59

Properties of the Arithmetic Mean

Answers to Self-Review 22

A Software Example

56

3 Describing Data: Numerical ~easures 57

Software Applications 18

Introduction

54

Software Commands

Answers to Self-Review

Become a Better Consumer and a Better Producer of Information 17

Dataset Exercises

48

53

Dataset Exercises

Association Does Not Necessarily Imply Causation 15

exercises.com

41

Pie Charts Exercises

12

Statistics, Graphics, and Ethics

Chapter Outline

38

Line Graphs 42

10

Ordinal-Level Data 11

Ethics

37

Other Graphic Presentations of Data 42

Levels of Measurement 9

Exercises

34

Cumulative Frequency Distributions

9

Ratio-Level Data

32

Frequency Polygon

6

Inferential Statistics Types of Variables

4

6

Descriptive Statistics

31

Graphic Presentation of a Frequency Distribution 32

2

Why Study Statistics?

30

68

The Relative Positions of the Mean, Median, and Mode 68 Exercises

70

Xl

Contents

xu

The Geometric Mean

Chapter

71

Exercises 72 Why Study Dispersion?

73

Measures of Dispersion

74

Range

5 A Survey of Probability Concepts 120 Introduction

74

Mean Deviation

75

Exercises 76 Variance and Standard Deviation Exercises 79 Software Solution

77

Classical Probability

124

Empirical Probability

125

Subjective Probability

Exercises 81 Interpretation and Uses of the Standard Deviation 82 Chebyshev's Theorem Exercises

Exercises

Rules of Addition

82

128

128

Exercises 133

83

Rules of Multiplication

84

134

137

Tree Diagrams 139

Pronunciation Key 86

Exercises

Chapter Exercises

Principles of Counting

86

89

Dataset Exercises

126

127

Contingency Tables

exercises.com

124

Some Rules for Computing Probabilities

84

Chapter Outline

122

Approaches to Assigning Probabilities

80

The Empirical Rule

121

What Is a Probability?

141 142

The Multiplication Formula 90

Software Commands

142

The Permutation Formula 143 90

Answers to Self-Review

The Combination Formula 92

145

Exercises 146 Chapter Outline 147

Chapter

Pronunciation Key 148

4 Describing Data: Displaying and Exploring Data 93 Introduction Dot Plots Exercises

exercises. com

152

Dataset Exercises

94

152

94

Software Commands

96

Answers to Self-Review 154

Quartiles, Deciles, and Percentiles Exercises

100

Box Plots

100

Skewness

103

Exercises

107

Chapter

6 Discrete Probability Distributions 156 Introduction 157

Describing the Relationship between Two Variables 107

What Is a Probability Distribution? Random Variables

Chapter Outline 112 Pronunciation Key 112 Chapter Exercises

112

116

Dataset Exercises

116

157

159

Discrete Random Variable

11 0

exercises.com

153

97

Exercises 102

Exercises

Chapter Exercises 148

159

Continuous Random Variable

160

The Mean, Variance, and Standard Deviation of a Probability Distribution 160 Mean

160

Variance and Standard Distribution

Software Commands 117

Exercises 163

Answers to Self-Review 119

Binomial Probability Distribution

164

161

Contents

xiii

How Is a Binomial Probability Distribution Computed 165

Systematic Random Sampling 216 Stratified Random Sampling 216

Binomial Probability Tables 167

Cluster Sampling 217

Exercises 170

Exercises 218

Cumulative Binomial Probability Distributions 172

Sampling "Error" 220

Exercises 173

Sampling Distribution of the Sample Mean 222

Poisson Probability Distribution 174

Exercises 225

Exercises 177

The Central Limit Theorem 226

Chapter Outline 177

Exercises 232

Chapter Exercises 178 Dataset Exercises 182

Using the Sampling Distribution of the Sample Mean 233

Software Commands 182

Exercises 237

Answers to Self-Review 184

Chapter Outline 237 Pronunciation Key 238 Chapter Exercises 238

Chapter

exercises.com 242

7 Continuous Probability Distributions 185

Dataset Exercises 243 Software Commands 243 Answers to Self-Review 244

Introduction 186 The Family of Uniform Distributions 186 Exercises 189

Chapter

The Family of Normal Probability Distributions 190

9 Estimation and Confidence Intervals 245

The Standard Normal Distribution 193 The Empirical Rule

195

Introduction 246

Exercises 196

Point Estimates and Confidence Intervals 246

Finding Areas under the Normal Curve 197

Known

0'

or a Large Sample 246

A Computer Simulation 251

Exercises 199

Exercises 253 Unknown Population Standard Deviation and a Small Sample 254

Exercises 202 Exercises 204 Chapter Outline 204 Chapter Exercises 205

Exercises 260 A Confidence Interval for a Proportion 260

Dataset Exercises 208

Exercises 263

Software Commands 209

Finite-Population Correction Factor 263

Answers to Self-Review 210

Exercises 264 Choosing an Appropriate Sample Size 265 Exercises 267

Chapter

Chapter Outline 268

8 Sampling Methods and the Central Umit Theorem Introduction 212 Sampling Methods 212

Pronunciation Key 269

211

Chapter Exercises 269 exercises.com 272 Dataset Exercises 273

Reasons to Sample 212

Software Commands 273

Simple Random Sampling 213

Answers to Self-Review 275

Contents

xiv

Exercises

Chapter

10 One-Sample Tests of Hypothesis 276 Introduction

Exercises

277

Exercises

What Is Hypothesis Testing?

278

321

326

Two-Sample Tests of Hypothesis: Dependent Samples 327

Five-Step Procedure for Testing a Hypothesis 278

Comparing Dependent and Independent Samples 331

Step 1: State the Nuli Hypothesis (Hal and the Alternate Hypothesis (H 1) 278

Exercises

Step 2: Select a Level of Significance 279

Chapter Outline 334

Step 3: Select the Test Statistic

279

Step 4: Formulate the Decision Rule Step 5: Make a Decision

319

Comparing Population Means with Small Samples 323

277

What Is a Hypothesis?

318

Two-Sample Tests about Proportions

281

282

333

Pronunciation Key

335

Chapter Exercises

335

exercises.com

One-Tailed and Two-Tailed Tests of Significance 283

-,',

340

Dataset Exercises

341

Software Commands

Testing for a Population Mean with a Known Population Standard Deviation 284

341

Answers to Self-Review

342

A Two-Tailed Test 284

Chapter

A One-Tailed Test 288 p-Value in Hypothesis Testing

288

12 Analysis of Variance

Testing for a Population Mean: Large Sample, Population Standard Deviation Unknown 290 Exercises

345

The F Distribution

291

Tests Concerning Proportions Exercises

Introduction

345

Comparing Two Population Variances

292

Exercises

295

349

ANOVA Assumptions

Testing for a Population Mean: Small Sample, Population Standard Deviation Unknown 295

The ANOVA Test 352

Exercises

Exercises

300

A Software Solution Exercises

301

303

Exercises

305

309

Dataset Exercises

11 Two-Sample Tests 312 of Hypothesis Introduction

365

Chapter Exercises

365

313

Two-Sample Tests of Hypothesis: Independent Samples 313

370 370

Software Commands

311

Chapter

364

Pronunciation Key

Dataset Exercises

310

Answers to Self-Review

362

exercises.com

309

Software Commands

359

Chapter Outline

Pronunciation Key 305 exercises.com

350

Inferences about Pairs of Treatment Means 360

Chapter Outline 304 Chapter Exercises

·344

371

Answers to Self-Review

373

Chapter

13 Linear Regression and Correlation

374

Introduction 375 What Is Correlation Analysis?

375

346

xv

Contents

The Coefficient of Correlation

377

The Coefficient of Determination Correlation and Cause Exercises

Exercises

381

382

Correlation Matrix 433

382

Global Test: Testing the Multiple Regression Model 434 Evaluating Individual Regression Coefficients 436

386

Regression Analysis

386

Least Squares Principle

Qualitative Independent Variables 439

386

Drawing the Line of Regression Exercises

Exercises

389

441

Analysis of Residuals 442

390

The Standard Error of Estimate

Chapter Outline 447

392

Pronunciation Key 448

Assumptions Underlying Linear Regression 395

Chapter Exercises

Exercises

exercises. com

396

448

459

Dataset Exercises

Confidence and Prediction Intervals 396 Exercises

432

Using a Scatter Diagram 432

Testing the Significance of the Correlation Coefficient 384 Exercises

432

Evaluating the Regression Equation

460

Software Commands 461

400

More on the Coefficient of Determination

400

Answers to Self-Review 463

Exercises 403 The Relationships among the Coefficient of Correlation, the Coefficient of Determination, and the Standard Error of Estimate 403

Chapter

15 Chi-Square Applications

Transforming Data 405

Introduction

Exercises

Goodness-of-Fit Test: Equal Expected Frequencies 465

407

Chapter Outline

408

464

470

Pronunciation Key 41 0

Exercises

Chapter Exercises

Goodness-of-Fit Test: Unequal Expected Frequencies 471

exercises.com

41 0

417

Dataset Exercises

Limitations of Chi-Square 473

417

Software Commands

Exercises

418

475

Contingency Table Analysis 746

Answers to Self-Review 420

Exercises

450

Chapter Outline 481

Chapter

Pronunciation Key 481

14 Multiple Regression and Correlation Analysis 421

Chapter Exercises exercises. com

482

484

Introduction 422

Dataset Exercises

Multiple Regression Analysis 422

Software Commands 486

Inferences in Multiple Linear Regression Exercises

423

485

Answers to Self-Review 487

426

Multiple Standard Error of Estimate 428

CD Chapters

Assumptions about Multiple Regression and Correlation 429

• Statistical Quality Control

The ANOVA Table 430

• Time Series and Forecasting

464

xvi

Contents

Appendixes Appendixes A-I Tables Binomial Probability Distribution 489 Critical Values of Chi-Square 494 Poisson Distribution 495 Areas under the Nonnal Curve 496 Table of Random Numbers 497 Student's t Distribution 498 Critical Values of the F Distribution 499 Wdcoxon T Values 501 Factors for Control Charts 502 Appendixes J-N Datasets Real Estate 503 Major League Baseball 506

Wages and Wage Earners 508 CIA International Economic and Demographic Data 512 Whitner Autoplex 515 Appendix 0 Getting Started with Megastat 516 AppendixP Visual Statistics 520 Answers to Odd-Numbered Exercises 525 Photo Credits 552 Index 553

What Is Statistics? GOALS When you have completed this chapter you will be able to:

I

Understand why we study· statistics.

Explain what is meant by descriptive statistics and inferential statistics.

2

Distinguish between

3

a qualitative variable

4

a discrete variable

and a quantitative variable. Distinguish between

and a continuous variable.

High speed conveyor belts and state-of-the-art technology efficiently move merchandise through Wal-Mart's distribution centers to keep its nearly 3,000 stores in stock. In 2004, the five largest American companies, ranked by sales were Wal-Mart, BP, Exxon Mobil, General Motors, and Ford Motor Company. (See Goal 5 and Statistics in Action box, page 4.)

Distinguish among the nominal, ordinal, interval, and ratio levels of measurement.

5

Define the terms mutually exclusive and exhaustive.

6

2

Chapter 1

Introduction More than 100 years ago H. G. Wells, an English author and historian, suggested that one day quantitative reasoning will be as necessary for effective citizenship as the ability to read. He made no mention of business because the Industrial Revolution was just beginning. Mr. Wells could not have been more correct. While "business experience," some "thoughtful guesswork," and "intuition" are key attributes of successful managers, today's business problems tend to be too complex for this type of decision making alone. Fortunately, business managers of the twenty-first century have access to large amounts of information. Alan Greenspan; Chairman of the Federal Reserve, is well known for his ability to analyze economic data. He is well aware of the importance of statistical tools and techniques to provide accurate and timely information to make public statements that have the power to move global stock markets and influence politicaUbiol(ing._Dr.j~J~~J).§p!:\n, _sP~J;!king~befQgL~~National$kills SUrnrnit, stat(3d: "Workers must be equipped not simply with technical know-how, bufalso with the ability to create, analyze, and transform information and to interact effectively with others. That is, separate the facts from opinions, and then organize these facts in an appropriate manner and analyze the information." One of the tools used to understand information is statistics. Statistics is used not only by business people; we all also apply statistical concepts in our lives. For example, to start the day you turn on the shower and let it run for a few moments. Then you put your hand in the shower to sample the temperature and decide to add more hot water or more cold water, or you conclude that the temperature is just right and enter the shower. As a second example, suppose you are at the grocery store and wish to buy a frozen pizza. One of the pizza makers has a stand, and they offer a small wedge of their pizza. After sampling the pizza, you decide whether to purchase the pizza or not. In both the shower and pizza examples, you make a decision and select a course of action based on a sample. Businesses face similar situations. The Kellogg Company ml,lst ensure that the mean amount of Raisin Bran in the 25.5-gram box meets label specifications. To do so, they might set a "target" weight somewhat higher than the amount specified on the label. Each box is then weighed after it is filled. The weighing machine reports a distribution of the content weights for each hour as well as the number "kicked-out" for being under the label specification during the hour. The Quality Inspection Department also randomly selects samples from the production line and checks the quality of the product and the weight of the product in the box. If the mean product weight differs significantly from the target weight or the percent of kick-outs is too large, the process is adjusted. On a national level, a candidate for the office of President of the United States wants to know what percent of the voters in Illinois will support him in the upcoming election. There are several ways he could go about answering this question. He could have his staff call all those people in Illinois who plan to vote in the upcoming election and ask for whom they plan to vote. He could go out on a street in Chicago, stop 10 people who look to be of voting age, and ask them for whom they plan to vote. He could select a random sample of about 2,000 voters from the state, contact these voters, and, on the basis of this information, make an estimate of the percent who will vote for him in the upcoming election. In this text we will show you why the third choice is the best course of action.

Why Study Statistics! If you look through your university catalog, you will find that statistics is required for many college programs. Why is this so? What are the differences in the statistics courses taught in the Engineering College, Psychology or Sociology Departments in the Liberal Arts College, and the College of Business? The biggest difference is the

3

What Is Statistics?

Examples of why we study statistics

examples used. The course content is basically the same. In the College of Business we are interested in such things as profits, hours worked, and wages. In the Psychology Department they are interested in test scores, and in Engineering they may be interested in how many units are manufactured on a particular machine. However, all three are interested in what is a typical value and how much variation there is in the data. There may also be a difference in the level of mathematics required. An engineering statistics course usually requires calculus. Statistics courses in colleges of business and education usually teach the course at a more applied level. You should be able to handle the mathematics in this text if you have completed high school algebra. So why is statistics required in so many majors? The first reason is that numerical information is everywhere. Look on the internet (www.gallup.com or www. standardandpoors.com) and in the newspapers (USA Today), news magazines (Time, Newsweek, U.S. News and World Report), business magazines (Business Week, Forbes), or general interest magazines (People), women's magazines (Home and Garden), or sports magazines (Sports Illustrated, ESPN The Magazine), and you will be bombarded with numerical information. Here are some examples: • In 2002 Maryland had the highest 3-year-average median income of $55,912, Alaska was second with a median income of $55,412, and West Virginia had the lowest median income $30,072. You can check the latest information by going to www.census.gov, under People select Income, then under Current Population Survey select Income in the United States: 2002, and then move to Median Household Income by State. • About 77 percent of golfers in the United States attended college, their average household income is more than $70,000 per year, 60 percent own computers, 45 percent have investments in stocks and bonds, and they spend $6.2 billion annually on golf equipment and apparel. You can find additional information about golfers at· www.fcon.com/golfing/demographics.htm • The average cost of big Hollywood movies soared in 2003. The top seven studios spent an average of $102.8 million to make and market their films. This is an increase of 15 percent from 2002. How did this increase affect ticket prices? The average ticket price was $6.03, an increase of $0.23 from 2002. The number of admissions declined 1.574 billion or 4 percent from the previous year. • USA Today prints Snapshots that provide interesting data. For example, newly constructed single family homes in 2003 are on average 2,320 square feet, up 40 percentfrom 1973. During the same time the average household size has decreased from 3.1 to 2.6. So, we have more space in the home and less people occupying the space. Year

Home in square feet

Household size

1973 2003

1,660 2,320

3.1 2.6

Another Snapshot reported that the typical first-time bride and groom in the United States are more than four years older than they were in 1960. Year

Man

Woman

1960 2003

22.8 years 26.9

20.3 years 25.3

You can check other Snapshots by going to www.usatoday.comandthen click on Snapshots. You will see a selection of recent Snapshots, sorted by News, Sports, Money, and Life.

Chapter 1

4

Sfatistlcsin Action, We call your atten, tion.to a feature we

·titleStatistics-in i A.~iicm. Read~ach ! oneearefullyto get an appreciation of [the wide application ;',ofstatistics,in'man-""",, i , agement, economics, pursing, law enforcement, sports, and other disciplines. Following is ail .' assortment' ofstatisti,

cans. William, Gates, founder of ' , Microsoft Corporation, ,is the richest. His net worth is estimated at ' $46.6 billion. "(\vww.forbes.,?om) ~In 2004, the five " 'largestArilerican companies, ranked by sales wereWal- , Mart, BP, Exxon Mobil,General ,Motors, and,Ford Motor Company. (www.forbes.com) • In the United States, a typical high school graduate earns $1.2 million in his or her lifetime, a typical 'college graduate with a bacnelor's degree earns $2.1 million, and a typical college graduate with a master's degree earns $2.5 million. (usgovinfo, •• '" "about.com/ . library/weekly/ aa072602a.htm)

How are we to determine if the conclusions reported are reasonable? Was the sample large enough? How were the sampled units selected? To be an educated consumer of this information, we need to be able to read the charts and graphs and understand the discussion of the numerical information. An understanding of the concepts of basic statistics will be a big help. A second reason for taking a statistics course is that statistical techniques are used to make decisions that affect our daily lives. That is, they affect our personal welfare. Here are a few examples: • Insurance companies use statistical analysis to set rates for home, automobile, life, and health insurance. Tables are available showing estimates that a 20-yearold female has 60.16 years of life remaining, and that a 50-year-old man has 27.63 years remaining. On the basis of these estimates, life insurance premiums are established. These tables are available at www.ssa.gov/OACT/STATS/table4cb.html. • The Environmental Protection Agency is interested in the water quality of Lake Erie. They periodically take water samples to establish the level of contamination and maintain the leverofquality:~' • Medical researchers study the cure rates for diseases using different drugs and different forms of treatment. For example, what'is the effect of treating a certain type of knee injury surgically or with physical therapy? If you take an aspirin each day, does that reduce your risk of a heart attack? A third reason for taking a statistics course is that the knowledge of statistical methods will help you understand how decisions are made and give you a better understanding of how they affect you. No matter what line of work you select, you will find yourself faced with decisions where an understanding of data analysis is helpful. In order to make an informed decision, you will need to be able to: 1. 2. 3. 4. 5.

Determine whether the existing information is adequate or additional information is required. Gather additional information, if it is needed, in such a way that it does not provide misleading results. Summarize the information in a useful and informative manner. Analyze the available information. Draw conclusions and make inferences while assessing the risk of an incorrect conclusion.

The statistical methods presented in the text will provide you with a framework for the decision-making process. In summary, there are at least three reasons for studying statistics: (1) data are everywhere, (2) statistical techniques are used to make many decisions that affect our lives, and (3) no matter what your career, you will make professional decisions that involve data. An understanding of statistical methods will help you make these decisions more effectively.

What Is Meant by Statistics? How do we define the word statistics? We encounter it frequently in our everyday language. It really has two meanings. In the more common usage, statistics refers to numerical information. Examples include the average starting salary of college graduates, the number of deaths due to alcoholism last year, the change in the Dow Jones Industrial Average from yesterday to today, and the number of home runs hit by the Chicago Cubs during the 2004 season. In these examples statistics are a value or a percentage. Other examples include: • The typical automobile in the United States travels 11,099 miles per year, the typical bus 9,353 miles per year, and the typical truck 13,942 miles per year. In

5

What Is Statistics?

Canada the corresponding information is 10,371 miles for automobiles, 19,823 miles for buses, and 7,001 miles for trucks. • The mean time waiting for technical support is 17 minutes. • The mean length of the business cycle since 1945 is' 61 months. The above are all examples of statistics. A collection of numerical information is called statistics (plural). We often present statistical information in a graphical form. A graph is often useful for capturing reader attention and to portray a large amount of information. For example, Chart 1-1 shows Frito-Lay volume and market share for the major snack and potato chip categories in supermarkets in the United States. It requires only a quick glance to discover there were nearly 800 million pounds of potato chips sold and that Frito-Lay sold 64 percent of that total. Also note that Frito-Lay has 82 percent of the corn chip market.

Potato Chips Tortilla Chips

11111111 ====

Pretzels

L!ll Frito-Lay III Industry

Extruded Snacks Corn Chips

==::.:..:a I

a

I 100

I 200

I 300

I 400

I 500

I 600

I 700

I 800

Millions of Pounds

CHART 1-1 Frito-Lay Volume and Share of Major Snack Chip Categories in U.S. Supermarkets

The subject of statistics, as we will explore it in this text, has a much broader meaning than just collecting and publishing numerical information. We define statistics as: STATISTICS The science of collecting, organizing, presenting, analyzing, and interpreting data to assist in making more effective decision~,

As the definition suggests, the first step in investigating a problem is to collect relevant data. It must be organized in some way and perhaps presented in a chart, such as Chart 1-1. Only after the data have been organized are we then able to analyze and interpret it. Here are some examples of the need for data collection. •

Research analysts for Merrill Lynch evaluate many facets of a particular stock before making a "buy" or "sell" recommendation. They collect the past sales data of the company and estimate future earnings. Other factors, such as the projected worldwide demand for the company's products, the strength of the competition, and the effect of the new union management contract, are also considered before making a recommendation. • The marketing department at Colgate-Palmolive Co., a manufacturer of soap products, has the responsibility of making recommendations regarding the potential profitability of a newly developed group of face soaps having fruit smells, such

6

Chapter 1

as grape, orange, and pineapple. Before making a final decision, they will test it in several markets. That is, they may advertise and sell it in Topeka, Kansas, and Tampa, Florida. On the basis of test marketing in these two regions, ColgatePalmolive will make a decision whether to market the soaps in the entire country. • The United States government is concerned with the present condition of our economy and with predicting future economic trends. The government conducts a large number of surveys to determine consumer confidence and the outlook of management regarding ~ales and production for the next 12 months. Indexes, such as the Consumer Price Index, are constructed each month to assess inflation. Information on department store sales, housing starts, money turnover, and indusfrlal production are just a few ofthe hundreds of items used to form the basis of the projections. These evaluations are used by banks to decide their prime lending rate and by the Federal Reserve Board to decide the level of control to place on the money supply. • Management must make decisions on the quality of production. For example, automatic drill presses do not produce a perfect hole that is always 1.30 inches in diameter each time the hole is drilled (because of drill wear, vibration of the machine, and other factors). Slight tolerances are permitted, but when the hole is too small or too large, these products are defective and cannot be used. The Quality Assurance Department is charged with continually monitoring production by using sampling techniques to ensure that outgoing production meets standards.

Types of Statistics Descriptive Statistics The study of statistics is usually divided into two categories: descriptive statistics and inferential statistics. The definition of statistics given earlier referred to "organizing, presenting, ... data." This facet of statistics is usually referred to as descriptive statistics.

DESCRIPTIVE STATISTICS Methods of organizing, summarizing, and presenting data in an informative way. For instance, the United States government reports the population of the United States was 179,323,000 in 1960, 203,302,000 in 1970, 226,542,000 in 1980, 248,709,000 in 1990, and 265,000,000 in 2000. This information is descriptive statistics. It is descriptive statistics if we calculate the percentage growth from one decade to the next. However, it would not be descriptive statistics if we use these to estimate the population of the United States in the year 2010 or the percentage growth from 2000 to 2010. Why? Because these statistics are not being used to summarize past populations but to estimate future popUlations. The following are some other examples of descriptive statistics. • There are a total of 42,796 miles of interstate highways in the United States. The interstate system represents only 1 percent of the nation's total roads but carries more than 20 percent of the traffic. The longest is 1-90, which stretches from Boston to Seattle, a distance of 3,081 miles. The shortest is 1-878 in New York City, which is 0.70 of a mile in length. Alaska does not have any interstate highways, Texas has the most interstate miles at 3,232, and New York has the most interstate routes with 28. • According to the Bureau of Labor Statistics, the seasonally adjusted average hourly earnings of production workers are $15.55 for March 2004. You can review the latest information on wages and productivity of American workers by going to the Bureau of Labor Statistics website at: http://www.bls.gov and select Average hourly earnings.

What Is Statistics?

7

Masses of unorganized data-such as the census of population, the weekly earnings of thousands of computer programmers, and the individual responses of 2,000 registered voters regarding their choice for President of the United States-are of little value as is. However, statistical techniques are available to organize this type of data into a meaningful form. Some data can be organized into a frequency distribution. (This procedure is covered in Chapter 2.) Various charts may be used to describe data; several basic chart forms are also presented in Chapter 4. Specific measures of central location, such as the mean, describe the central value of a group of numerical data. A number of statistical measures are used to describe how closely the data cluster about an average. These measures of central location and dispersion are discussed in Chapter 3.

Inferential Statistics Another facet of statistics is inferential statistics-also called statistical inference or inductive statistics. Our main concern regarding inferential statistics is finding something about a population from a sample taken from that population. For example, a recent survey showed only 46 percent of high school seniors can solve problems involving fractions, decimals, and percentages. And only 77 percent of high school seniors correctly totaled the cost of soup, a burger, fries, and a cola on a restaurant menu. Since these are inferences about a population (all high school seniors) based on sample data, they are inferential statistics. INFERENTIAL STATISTICS The methods used to determine something about a population on the basis of a sample. Note the words population and sample in the definition of inferential statistics. We often make reference to the population living in the United States or the 1.29 billion population of China. However, in statistics the word population has a broader meaning. A population may consist of individuals-such as all the students enrolled at Utah State University, all the students in Accounting 201, or all the CEOs from the Fortune 500 companies. A population may also consist of-.objects, such as all the X8-70 tires produced at Cooper Tire and .Rubber Company in the Findlay, Ohio, plant; the accounts receivable at the end of October for Lorrange Plastics, Inc.; or auto claims filed in the first quarter of 2004 at the Northeast Regional Office of State Farm Insurance. The measurement of interest might be the scores on the first examination of all students in Accounting 201, the wall thickness of the Cooper Tires, the dollar amount of Lorrange Plastics accounts receivable, or the amount of auto insurance claims at State Farm. Thus, a population in the statistical sense does not always refer to people. POPULATION The entire set of individuals or objects of interest or the measurements obtained from all individuals or objects of interest. To infer something about a population, we usually take a sample from the population. SAMPLE A portion, or part, of the population of interest.

Reasons for sampling

Why take a sample instead of studying every member of the population? A sample of registered voters is necessary because of the prohibitive cost of contacting millions of voters before an election. Testing wheat for moisture content destroys the wheat, thus making a sample imperative. If the wine tasters tested all the wine, none would be available for sale. It would be physically impossible for a few marine biologists to capture and tag all the seals in the ocean. (These and other reasons for sampling are discussed in Chapter 8.)

8

. Chapter 1

As noted, using a sample to learn something about a population is done extensively in business, agriculture, politics, and government, as cited in the following examples: • Television networks constantly monitor the popularity of their programs by hiring Nielsen and other organizations to sample the preferences of 1V viewers. For example, in a sample of 800 prime-time viewers, 320 or 40 percent indicated they watched CSI (Crime Scene Investigation) on CBS last week. These program ratings are used to set advertising rates or to cancel programs. • Gamous and Associates, a public accounting firm, is conducting an audit of Pronto Printing Company. To begin, th!3 accounting firm selects a random sample of 100 invoices and checks each invoice for accuracy. There is at least one error on five of the invoices; hence the accounting firm estimates that 5 percent of the population of invoices contain at least one error. • A random sample of 1,260 marketing graduates from four-year schools showed their mean starting salary was $42,694. We therefore estimate the mean starting salary for all marketing graduates of four-year institutions to be $42,694. The relationship between a sample and a population is portrayed below. For example, we wish to estimate the mean miles per gallon of SUVs. Six SUVs are selected from the population. The mean MPG of the six is used to estimate MPG for the population.

Sam(;1le Items selected from the population

PO(;1ulation All items

.....

.....

~

... ~

~

We strongly suggest you do the Self-Review exercises.

Self-Review 1-1

.....

~

:{:::::':?

~

.....

):tr,:,'}:,

~

.....

-lfZ:;;:=.

...

~

~

... ;$'."':;s.

~

Following is a self-review problem. There are a number of them interspersed throughout each chapter. They test your comprehension of the preceding material. The answer and method of solution are given at the end of the chapter. You can find the answer to the following Self-Review on page 22. We recommend that you solve each one and then check your answer.

The answers are at the end of the chapter. Chicago-based Market Facts asked a sample of 1,960 consumers to try a newly developed chicken dinner by Boston Market. Of the 1,960 sampled, 1,176 said they would purchase the dinner if it is marketed. (a) What could Market Facts report to Boston Market regarding acceptance of the chicken dinner in the population? (b) Is this an example of descriptive statistics or inferential statistics? Explain.

What Is Statistics?

9

Types of Variables Qualitative variable

There are two basic types of variables: (1) qualitative and (2) quantitative (see Chart 1-2). When the characteristic being studied is nonnumeric, it is called a qualitative variable or an attribute. Examples of qualitative variables are gender, religious affiliation, type of automobile owned, state of birth, and eye color. When the data are qualitative, we are usually interested in how many or what proportion fall in each category. For example, what percent of the population has blue eyes? How many Catholics and how many Protestants are there in the United States? What percent ofthe total number of cars sold last month were SUVs? Qualitative data are often summarized in charts and bar graphs (Chapter 2). Types of Variables

I

I

I

I

Qualitative

I • Brand of PC • Marital status • Hair color

I

Quantitative

I

I

I

I

Discrete

Continuous

I

I

• Children in a family • Strokes on a golf hole • TV sets owned

• Amount of income tax paid • Weight of a student • Yearly rainfall in Tampa, FL

CHART 1-2 Summary of the Types of Variables When the variable studied can be reported numerically, the variable is called a quantitative variable. Examples of quantitative variables are the balance in your checking account, the ages of company CEOs, the life of an automobile battery (such as 42 months), and the number of children in a family. Quantitative variables are either discrete or continuous. Discrete variables can assume only certain values, and there are usually "gaps" between the values. Examples of discrete variables are the number of bedrooms in a house (1, 2, 3, 4, etc.), the number of cars arriving at Exit 25 on 1-4 in Florida near Walt Disney World in an hour (326, 421, etc.), and the number of students in each section of a statistics course (25 in section A, 42 in section B, and 18 in section C). Typically, discrete variables result from counting. We count, for example, the number of cars arriving at Exit 25 on 1-4, and we count the number of statistics students in each section. Notice that a home can have 3 or 4 bedrooms, but it cannot have 3.56 bedrooms. Thus, there is a "gap" between possible values. Observations of a continuous variable can assume any value within a specific range. Examples of continuous variables are the air pressure in a tire and the weight of a shipment of tomatoes. Other examples are the amount of raisin bran in a box and the duration of flights from Orlando to San Diego. Typically, continuous variables result from measuring.

Levels of Measurement Data can be classified according to levels of measurement. The level of measurement of the data often dictates the calculations that can be done to summarize and present

10

Chapter 1

the data. It will also determine the statistical tests that should be performed. For example, there are six colors of candies in a bag of M&M's candies. Suppose we assign brown a value of 1, yellow 2, blue 3, orange 4, green 5, and red 6. From a bag of candies, we add the assigned color values and divide by the number of candies and report that the mean color is 3.56. Does this mean that the average color is blue or orange? Of course not! As a second example, in a high school track meet there are eight competitors in the 400 meter run. We report the order of finish and that the mean finish is 4.5. What does the mean finish tell us? Nothing! In both of these instances, we have not properly used the level of measurement. There are actually four levels of measurement: nominal, ordinal, interval, and ratio. The lowest, or the most primitive, measurement is the nominal level. The highest, or the level that gives us the most information about the observation, is the ratio level of measurement.

Nominal-Level Data For the nominal level of measurement observations of a qualitative variable can only be classified and counted. There is no particular order to the labels. The classification of the six colors of M&M's milk chocolate candies is an example of the nominal level of measurement. We simply classify the candies by color. There is no natural order. That is, we could report the brown candies first, the orange first, or any of the colors first. Gender is another example of the nominal level of measurement. Suppose we count the number of students entering a football game with a student ID and report how many are men and how many are women. We could report either the men or the women first. For the nominal level the only measurement involved consists of counts. Table 1-1 shows a breakdown of the sources of world oil supply. The variable of interest is the country or region. This is a nominal-level variable because we record the information by country or region and there is no natural order. We could have reported the United States last instead of first. Do not be distracted by the fact that we summarize the variable by reporting the number of barrels produced per day.

TABLE 1-1 World Oil Supply by Country or Region Country or Region

Millions of Barrels per Day

Percent

United States Persian Gulf OAPEC OPEC

9.05 18.84 19.50 28.00

12 25 26 37

Total

75.39

100

Table 1-1 shows the essential feature of the nominal scale of measurement: there is no particular order to the categories. The categories in the previous example are mutually exclusive, meaning, for example, that a particular barrel of oil cannot be produced by the United States and the Persian Gulf Region at the same time.

MUTUALLY.EXCLUSIVE A property of a set of categories such that an individual or object is included in only one category. The categories in Table 1-1 are also exhaustive, meaning that every member of the population or sample must appear in one of the categories. So the categories include all oil producing nations.

11

What Is Statistics?

EXHAUSTIVE A property of a set of categories such that each individual or object must appear in a category. In order to process data on oil production, gender, employment by industry, and so forth, the categories are often numerically coded 1, 2, 3, and so on, with 1 representing the United States, 2 representing Persian Gulf, for example. This facilitates counting by the computer. However, because we have assigned numbers to the various categories, this does not give us license to manipulate the numbers. For example, 1 + 2 does not equal 3, that is, United States + Persian Gulf does not equal OAPEC. To summarize, nominal-level data have the following properties: 1. 2.

Data categories are mutually exclusive and exhaustive. Data categories have no logical order.

Ordinal-Level Data The next higher level of data is the ordinal level. Table 1-2 lists the student ratings of Professor James Brunner in an Introduction to Finance course. Each student in the class answered the question "Overall how did you rate the instructor in this class?" The variable rating illustrates the use of the ordinal scale of measurement. One classification is "higher" or "better" than the next one. That is, "Superior" is better than "Good," "Good" is better than "Average," and so on. However, we are not able to distinguish the magnitude of the differences between groups. Is the difference between "Superior" and "Good" the same as the difference between "Poor" and "Inferior"? We cannot tell. If we substitute a 5 for "Superior" and a 4 for "Good," we can conclude that the rating of "Superior" is better than the rating of "Good," but we cannot add a ranking of "Superior" and a ranking of "Good," with the result being meaningful. Further we cannot conclude that a rating of "Good" (rating is 4) is necessarily twice as

TABLE 1-2 Rating of a Finance Professor Rating Superior Good Average Poor Inferior

Frequency 6

28 25 12 3

12

Chapter 1

high as a "Poor" (rating is 2). We can only conclude that a rating of "Good" is better than a rating of "Poor." We cannot conclude how much better the rating is. Another example of ordinal-level data is the Homeland Security Advisory System. The Department of Homeland Security publishes this information regarding the risk of terrorist activity to federal, state, and local authorities and to the American people. The five risk levels from lowest to highest including a description and color codes are: Risk level Low Guarded Elevated High Severe

Description

Color

Low risk of terrorist attack General risk of terrorist attack Significant risk of terrorist attack High risk of terrorist attack Severe risk of terrorist attack

Green Blue Yellow Orange Red

This is ordinal scale data because we know the order or ranks of the risk levels-that is, orange is higher than yellow-but the amount of the difference between each of the levels is not necessarily the same. You can check the current status by going to http://www.whitehouse.gov/homeland. In summary, the properties of ordinal-level data are: 1. 2.

The data classifications are mutually exclusive and exhaustive. Data classifications are ranked or ordered according to the particular trait they possess.

Interval-Level Data The interval level of measurement is the next highest level. It includes all the characteristics of the ordinal level, but in addition, the difference between values is a constant size. An example of the interval level of measurement is temperature. Suppose the high temperatures on three consecutive winter days in Boston are 28, 31, and 20 degrees Fahrenheit. These temperatures can be easily ranked, but we can also determine the difference between temperatures. This is possible because 1 degree Fahrenheit represents a constant unit of measurement. Equal differences between two temperatures are the same, regardless of their position on the scale. That is, the difference between 10 degrees Fahrenheit and 15 degrees is 5, the difference between 50 and 55 degrees is also 5 degrees. It is also important to note that 0 is just a point on the scale. It does not represent the absence of the condition. Zero degrees Fahrenheit does not represent the absence of heat, just that it is cold! In fact 0 degrees Fahrenheit is about -18 degrees on the Celsius scale. The properties of interval-level data are: 1. 2. 3.

Data classifications are mutually exclusive and exhaustive. Data classifications are ordered according to the amount of the characteristic they possess. Equal differences in the characteristic are represented by equal differences in the measurements.

There are few examples of the interval scale of measurement. Temperature, which was just cited, is one example. Others are shoe size and 10 scores.

Ratio-Level Data Practically all quantitative data are the ratio level of measurement. The ratio level is the "highest" level of measurement. It has all the characteristics of the interval level, but in addition, the 0 point is meaningful and the ratio between two numbers is

What Is Statistics?

13

meaningful. Examples of the ratio scale of measurement include: wages, units of production, weight, changes in stock prices, distance between branch offices, and height. Money is a good illustration. If you have zero dollars, then you have no money. Weight is another example. If the dial on the scale of a correctly calibrated device ,is at zero, then there is a complete absence of weight. The ratio of two numbers is also meaningful. If Jim earns $40,000 per year selling insurance and Rob earns $80,000 per year selling cars, then Rob earns twice as much as Jim. The difference between interval and ratio measurements can be confusing. The fundamental difference involves the definition of a true zero and the ratio between two values. If you have $50 and your friend has $100, then your friend has twice as much money as you. You may convert this money to Japanese yen or English pounds, but your friend will still have twice as much money as you. If you spend your $50, then you have no money. This is an example of a true zero. As another example, a sales representative travels 250 miles on Monday and 500 miles on Tuesday. The ratio of the distances traveled on the two days is 2/1; converting these distances to kilometers, or even inches, will not change the ratio. It is still 2/1. Suppose the sales representative works at home on Wednesday and does not travel. The distance traveled on this date is zero, and this is a meaningful value. Hence, the variable distance has a true zero point. Let's compare the above discussion of the variables money and distance with the variable temperature. Suppose the low temperature in Phoenix, Arizona, last night was 40°F and the high today was 80°F. On the Fahrenheit scale the daytime high was twice the nighttime low. To put it another way, the ratio of the two temperatures was 2/1. However, if we convert these temperatures from the Fahrenheit scale to the Celsius scale the ratio changes. We use the formula C = (F - 32)/1.8 to convert the temperatures from Fahrenheit to Celsius, so the high temperature is 26.6rC and the low temperature is 4.44°C. You can see that the ratio of the two temperatures is no longer 2/1. Also, if the temperature is OaF this does not imply that there is no temperature. Therefore, temperature is measured on an interval scale whether it is measured on the Celsius or the Fahrenheit scale. In summary, the properties of the ratio-level data are: 1. 2. 3. 4.

Data classifications are mutually exclusive and exhaustive. Data classifications are ordered according to the amount of the characteristics they possess. ' Equal differences in the characteristic are represented by equal differences in the numbers assigned to the classifications. The zero point is the absence of the characteristic.

Table 1-3 illustrates the use of the ratio scale of measurement. It shows the incomes of four father and son combinations.

TABLE 1-3 Father-Son Income Combinations Name

Father

Son

Lahey Nale Rho Steele

$80,000 90,000 60,000 75,000

$ 40,000 30,000 120,000 130,000

Observe that the senior Lahey earns twice as much as his son. In the Rho family the son makes twice as much as the father. Chart 1-3 summarizes the major characteristics of the various levels of measurement.

14

Chapter 1

CHART 1-3 Summary of the Characteristics for Levels of Measurement

Self-Review 1-2

What is the level of measurement reflected by the following data? (a) The age of each person in a sample of 50 adults who listemto one of the 1,230 talk radio stations in the· United States is:

35 30 47 44 35 (b)

29 36 37 39 37

41 41 41 35 38

34 39 27 35 43

44 44 33 41 40

46 39 33 42 48

42 43 39 37 42

42 43 38 42 31

37 44 43 38 51

47 40 22 43 34

In a survey of 200 luxury-car owners, 100 were from California, 50 from New York, 30 from Illinois, and 20 from Ohio.

Exercises The answers to the odd-numbered exercises are at the end of the book.

1.

2.

3. 4.

What is the level of measurement for each of the following variables? a. Student IQ ratings. b. Distance students travel to class. c. Student scores on the first statistics test. d. A classification of students by state of birth. e. A ranking of students by freshman, sophomore, junior, and senior. f. Number of hours students study per week. What is the level of measurement for these items related to the newspaper business? a. The number of papers sold each Sunday during 2004. b. The departments, such as editorial, advertising, sports, etc. c. A summary of the number of papers sold by county. d. The number of years with the paper for each employee. Look in the latest edition of USA Today or your local newspaper and fihd examples of each level of measurement. Write a brief memo summarizing your findings. For each of the following, determine whether the group is a sample or a population. a. The participants in a study of a new cholesterol drug. b. The drivers who received a speeding ticket in Kansas City last month. c. Those on welfare in Cook County (Chicago), Illinois. d. The 30 stocks reported as a part of the Dow Jones Industrial Average.

What Is Statistics?

15

Statistics, Graphics, and Ethics You have probably heard the old saying that there are three kinds of lies: lies, damn lies, and statistics. This saying is attributable to Benjamin Disraeli and is over a century old. It has also been said that "figures don't lie: liars figure." Both of these statements refer to the abuses of statistics in which data are presented in ways that are misleading. Many abusers of statistics are simply ignorant or careless, while others have an objective to mislead the reader by emphasizing data that support their position while leaving out data that may be detrimental to their position. One of our major goals in this text is to make you a more critical consumer of information. When you see charts or data in a newspaper, in a magazine, or on TV, always ask yourself: What is the person trying to tell me? Does that person have an agenda? Following are several examples of the abuses of statistical analysis.

Misleading Statistics

An average may not be representative of all the data.

Several years ago, a series of TV advertisements reported that "2 out of 3 dentists surveyed indicated they would recommend Brand X toothpaste to their patients." The implication is that 67 percent of all dentists would recommend the product to their patients. What if they surveyed only three dentists? It would certainly not be an accurate representation of the real situation. The trick is that the manufacturer of the toothpaste could take many surveys of three dentists and report only the surveys of three dentists in which two dentists indicated they would recommend Brand X. This is concealing the information to mislead the public. Further, a survey of more than three dentists is needed, and it must be unbiased and representative of the population of all dentists. We discuss sampling methods in Chapter 8. The term average refers to several different measures of central location that we discuss in Chapter 3. To most people, an average is found by adding the values involved and dividing by the number of values. So if a real estate developer tells a client that the average home in a particular subdivision sold for $150,000, we assume that $150,000 is a representative selling price for all the homes. But suppose there are only five homes in the subdivision and they sold for $50,000, $50,000, $60,000, $90,000, and $500,000. We can correctly claim that the average selling price is $150,000, but does $150,000 really seem like a "typical" selling price? Would you like to also know that the same number of homes sold for more than $60,000 as less than $60,000? Or that $50,000 is the selling price that occurred most frequently? So what selling price really is the most "typical"? This example illustrates that a reported average can be misleading, because it can be one of several numbers that cOl,lld be used to represent the data. There is really no objective set of criteria that states what average should be reported on each occasion. We want to educate you as a consumer of data about how a person or group might report one value that favors their position and exclude other values. We will discuss averages, or measures of central location, in Chapter 3. Sometimes numbers themselves can be deceptive. The mean price of homes sold last month in the Tampa, Florida, area was $134,891.58. This sounds like a very precise value and may instill a high degree of confidence in its accuracy. To report that the mean selling price was $135,000 doesn't convey the same precision and accuracy. However, a statistic that is very precise and carries 5 or even 10 decimal places is not necessarily accurate.

Association Does Not Necessarily Imply Causation Another area where there can be a misrepresentation of data is the association between variables. In statistical analysis often we find there is a strong association between variables. We find there is a strong negative association between outside work hours and grade point average. The more hours a student works, the lower will be his or her grade point average. Does it mean that more hours worked causes a lower grade point

16

Chapter 1

average? Not necessarily. It is also possible that the lower grade point average does not make the student eligible for a scholarship and therefore the student is required to engage in outside work to finance his or her education. Alternatively, both hours worked and lower GPA could be a result of the social circumstances of the student. Unless we have used an experimental design that has successfully controlled the influence of all other factors on grade point average except the hours worked, or vice versa, we are not justified in establishing any causation between variables based on statistical evidence alone. We study the association between variables iri Chapters 13 and 14.

Graphs Can Be Misleading. Really, today in business, graphics are used as a visual aid for an easy interpretation. However, if they are not drawn carefully, they can lead to misinterpretation of information. As either the preparer or the consumer of such graphics, it is useful to remember that the intention is to communicate an objective and accurate representation of reality. Neither sender nor receiver will benefit by intentional or sloppy distortions.

Examples

School taxes for the Corry Area Exempted School District increased from $100 in 2000 to $200 in the year 2005 (see Chart 1-4). That is, the taxes doubled during the 5-year period. To show this change, the dollar sign on the right is twice as tall as the one on the left. However, it is also twice as wide! Therefore the area of the dollar sign on the right is 4 times (not twice) that on the left. Chart 1-4 is misleading because visually the increase is much larger than it really is.

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CHART 1-4 School Taxes for 2000 and 2005, Corry Exempted School District Graphs and charts of data, such as histograms, line charts, and bar charts, can also be misleading if they are not drawn appropriately. We cover these graphs and charts in detail in the next chapter. A misleading visual interpretation in the context of charts arises often due to a presentation of only part of the data, or using the horizontal and/or vertical axis inappropriately. Chart 1-5 is designed to show a relationship between unemployment rate (in percent) and crime rate (in thousands, per year) in Canada in three different ways based on the same data. In Chart 1-5a, we have broken the vertical axis at 2000, and thus show a strong relation between unemployment rate and crime. In Chart 1-5b, we have broken the horizontal axis at a 7-percent rate of unemployment. In this graph, we get an impression of a weaker relation between unemployment rate and crime. A more accurate depiction of the relationship can be obtained by using values near the minimum values of the variables as starting points on each axis. Thus, a break on the vertical axis at 2000 and on the horizontal axis at 7 percent will give you a more accurate picture of the relationship as shown in Chart 1-5c. There are many graphing techniques, but there are no hard and fast rules about drawing a graph. It is therefore both a science and an art. Your aim should always be

17

What Is Statistics?

Graph a

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Unemployment Rate and Crime Rate in Canada a truthful representation of the data. The objectives and the assumptions underlying the data must be kept in mind and mentioned briefly along with graphs. The visual impressions conveyed by the graphs must correspond to the underlying data. The graphs should reveal as much information as possible with the greatest precision and accuracy. Graphical excellence is achieved when a viewer can get the most accurate and comprehensive picture of the situation underlying the data set in the shortest possible time. In brief, a graph should act like a mirror between the numerical data and the viewer. According to a popular saying, "Numbers speak for themselves." This is true for small data sets. For large data sets, it may be difficult to discern any patterns by looking at numbers alone. We therefore need accurate portrayal of data through graphs that can speak for numbers, and can give a quick overview of the data. We discuss graphic tec,hniques in detail in Chapters 2 and 4.

Become a Better Consumer and a Better Producer of Information There are many other ways that statistical information can be deceiving. It may be because (1) The data are not representative of the population; (2) Appropriate statistics have not been used; (3) The data do not satisfy the assumptions required for inferences; (4) The prediction is too far out from the range of observed data; (5) Policy analysis does not meet the requirements of either data or theory or both; (6) Ignorance and/or carelessness on the part of the investigator; (7) A deliberate attempt to introduce bias has been made to mislead the consumer of information. Entire books have been written about the subject. The most famous of these is How to Lie with Statistics by Darrell Huff. Understanding the art and science of statistics will make you both a better consumer of information as well as a better producer of information (statistician).

Ethics .Aside from the ethical issues raised in recent years with financial reporting from companies such as Enron and Tyco International, professional practices with statistical research and reporting is strongly encouraged by the American Statistical Association. In 1999 the ASA provided written guidelines and suggestions (see http://www. amstat.org) for professionalism and the responsibilities that apply to researchers and ,consultants using or conducting statistical analysis. As the guidelines state, "Clients, employers, researchers, policy makers, journalists, and the public should be urged to expect that statistical practice will be conducted in accordance with these guidelines and to object when it is not. While learning how to apply statistical theory to problems, students should be encouraged to use these guidelines whether or not their target professional specialty will be 'statistician.'"

18

Chapter 1

Software Applications Computers are now available to students at most colleges and universities. Spreadsheets, such as Microsoft Excel, and statistical software packages, such as MINITAB, are available in most computer labs. The Microsoft Excel package is bundled with many home computers. In this text we use both Excel and MINITAB for the applications. We also use an Excel add-in called MegaStat. This add-in gives Excel the capability to produce additional statistical reports. The following example shows the application of software in statistical analysis. In Chapters 2, 3, and 4 we illustrate methods for summarizing and describing data. An example used in those chapters refers to the price reported in thousands of dollars of 80 vehicles sold last month at Whitner Autoplex. The following Excel output reveals, among other things, that (1) 80 vehicles were sold last month, (2) the mean (average) selling price was $23,218, and (3) the selling prices ranged from a minimum of $15,546 to a maximum of $35,925.

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The following output is from the MINITAB system. It contains much of the same information.

What Is Statistics?

19

Had we used a calculator to arrive at these measures and others needed to fully analyze the selling prices, hours of calculation would have been required. The likelihood of an error in arithmetic is high when a large number of values are concerned. On the other hand, statistical software packages and spreadsheets can provide accurate information in seconds. At the option of your instructor, and depending on the software system available, we urge you to apply a computer package to the exercises in the Dataset Exercises section in each chapter. It will relieve you of the tedious calculations and allow you to concentrate on data analysis.

Chapter Outline I. Statistics is the science of collecting, organizing, presenting, analyzing, and interpreting data to assist in making more effective decisions.

II. There are two types of statistics. A. Descriptive statistics are procedures used to organize and summarize data. B. Inferential statistics involve taking a sample from a population and making estimates about a population based on the sample results. 1. A population is an entire set of individuals or objects of interest or the measurements obtained from all individuals or objects of interest. 2. A sample is a part of the population. III. There are two types of variables. A. A qualitative variable is nonnumeric. 1. Usually we are interested in the number or percent of the observations in each category. 2. Qualitative data are usually summarized in graphs and bar charts. B. There are two types of quantitative variables and they are usually reported numerically. 1. Discrete variables can assume only certain values, and there are usually gaps between values. 2. A continuous variable can assume any value within a specified range. IV. There are four levels of measurement. A. With the nominal level, the data are sorted into categories with no particular order to the categories. 1. The categories are mutually exclusive. An individual or object appears in only one category. 2. The categories are exhaustive. An individual or object appears in at least one of the categories. B. The ordinal level of measurement presumes that one classification is ranked higher than another. C. The interval level of measurement has the ranking characteristic of the ordinal level of measurement plus the characteristic that the distance between values is a constant size. D. The ratio level of measurement has all the characteristics of the interval level, plus there is a zero point and the ratio of two values is meaningful.

Chapter Exercises 5. Explain the difference between qualitative and quantitative variables. Give an example of qualitative and quantitative variables.

6 . . Explain the difference between a sample and a populatiori. 7. List the four levels of measurement and give an example (different from those used in the book) of each level of measurement.

S. Define the term mutually exclusive. 9. Define the term exhaustive. 10. Using data from such publications as the Statistical Abstract of the United States, the World Almanac, Forbes, or your local newspaper, give examples of the nominal, ordinal, interval, and ratio levels of measurement. 11. The Struthers Wells Corporation employs more than 10,000 white collar workers in its sales offices and manufacturing facilities in the United States, Europe, and Asia. A sample of 300

. 20

Chapter 1

of these workers revealed 120 would accept a transfer to a location outside the United States. On the basis of these findings, write a brief memo to Ms. Wanda Carter, VicePresident of Human Services, regarding all white collar workers in the firm and their willingness to relocate. 12. AVX Stereo Equipment, Inc. recently began a "no-hassles" return policy. A sample of 500 customers who had recently returned items showed 400 thought the policy was fair, 32 thought it took too long to complete the transaction, and the remainder had no opinion. On the basis of these findings, make an inference about the reaction of all customers to the new policy. 13. Explain the difference between a discrete and a continuous variable. Give an example of each not included in the text. 14. The following chart depicts sales, in thousands, of manufactured homes sold in the United States between 1990 and 2003.

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Write a brief description of the sales information. Did sales increase or decrease over the period? What was the trend of sales over the period?

• exerCIses. com These exercises use the World Wide Web, a rich and growing source of up-to-date information. Because of the changing nature and the continuous revision of websites, you may well see different menus, and the exact addresses, or URLs, may change. When you visit a page, be prepared to search the link. 15. Suppose you recently opened an account with AmeriTrade, Inc., an on-line broker. You decide to purchase shares of either Johnson and Johnson (a pharmaceutical company) or PepsiCo (the parent company of Pepsi and Frito Lay). For a comparison of the two companies go to http://finance.yahoo.com and in the space where it says "Enter Symbol" enter the letters JNJ and PEp, which are the respective symbols for the two companies. Click on GO and you should receive some current information about the selling price of the two . stocks. To the right of this information click on More Info and then click on Research. Here you will find information from stock analysts evaluating these stocks. Brokers rate the stock a 1 if it Is a strong buy and a 5 if it is a strong sell. What level of measurement is this information? Which of the stocks would you recommend?

What Is Statistics?

21

Dataset Exercises 16. Refer to the Real Estate data at the back of the text, whiqh reports information on homes sold in the Denver, Colorado, area last year. Consider the following variables: selling price, number of bedrooms, township, and distance from the center of the city. a. Which of the variables are qualitative and which are quantitative? b. Determine the level of measurement for each of the variables. 17. Refer to the Baseball 2003 data, which reports information on the 30 Major League Baseball teams for the 2003 season. Consider the following variables: number of wins, team salary, season attendance, whether the team played its home games on a grass field or an artificial surface, and the number of home runs hit. a. Which of these variables are quantitative and which are qualitative? b. Determine the level of measurement for each of the variables. 18. Refer to the Wage data, which reports information on annual wages for a sample of 100 workers. Also included are variables relating to industry, years of education, and gender for each worker. a. Which of the 12 variables are qualitative and which are quantitative? b. Determine the level of measurement for each variable. 19. Refer to the CIA data, which reports demographic and economic information on 46 countries. a. Which of the variables are quantitative and which are qualitative? b. Determine the level of measurement for each of the variables.

22

Chapter 1

Chapter 1 Answers to Self-Review 1-1

a. On the basis of the sample of 1,960 consumers, we estimate that, if it is marketed, 60 percent of all consumers will purchase the chicken dinner (1 ,176/1,960) x 100 = 60 percent. b. Inferential statistics, because a sample was used to draw a conclusion about how all consumers in the population would react if the chicken dinner were marketed.

1-2

a. Age is a ratio scale variable. A 40-year-old is twice as old as someone 20 years old. b. Nominal scale. We could arrange the states in any order.

Describing Data: Frequency Distributions and Graphic Presentation GOALS When you have completed this chapter, you will be able to:

I

Organize data into

a frequency

.

distribution.

Portray a frequency distribution in a histogram, frequency polygon, and cumulative frequency polygon.

2

Present data using such graphical techniques as line charts, bar charts, and pie charts.

3

The chart on page 41 shows the hourly wages of a sample of certified welders in the Atlanta, Georgia area. What percent of the welders make less than $20.00 per hour? Refer to the chart. (See Goal 2 and Exercise 13.)

24

. Chapter 2

Introduction The highly competitive automotive retailing business has changed significantly over the past 5 years, due in part to consolidation by large, publicly owned dealership groups. Traditionally, a local family owned and operated the community dealership, which might have included one or two manufacturers, like Pontiac and GMC Trucks or Chrysler and the popular Jeep line. Recently, however, skillfully managed and well-financed companies have been acquiring local dealerships across large regions of the country. As these groups acquire the local dealerships, they often bring standard selling practices, common software and hardware technology platforms, and management reporting techniques. The goal is to provide animproved buying experience for the consumer, while increasing the profitability of the larger dealership organization. In many cases, in addition to reaping the financial benefits of selling the dealership, the family is asked to continue running th(:l dealership on a daily basis. Today, it is common for these megadealerships to employ over 10,000 people, generate several billion dollars in annual sales, own more than 100 franchises, and be traded on the New York Stock Exchange or NASDAQ. The consolidation has not come without challenges. With the acquisition of dealerships across the country, AutoUSA, one of the new megadealerships, now sells the inexpensive Korean import brands Kia and Hyundai, the high-line BMW and Mercedes Benz sedans, and a full line of Ford and Chevrolet cars and trucks. Ms. Kathryn Ball is a member of the senior management team at AutoUSA. She is responsible for tracking and analyzing vehicle selling prices for AutoUSA. Kathryn would like to summarize vehicle selling prices with charts and graphs that she could review monthly. From these tables and charts, she wants to know the typical selling price as well as the lowest and highest prices. She is also interested in describing the demographics of the buyers. What are their ages? How many vehicles do they own? Do they want to buy or lease the vehicle? Whitner Autoplex located in Raytown, Missouri, is one of the AutoUSA dealerships. Whitner Autoplex includes Pontiac, GMC, and Buick franchises as well as a BMW store. General Motors is actively working with its dealer body to combine at one location several of its franchises, such as Chevrolet, Pontiac, or Cadillac. Combining franchises improves the floor traffic and a dealership has product offerings for all de-

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mographics. BMW, with its premium brand and image, wants to move away from calling its locations dealerships, in[l12'r;atiS1'1ti:~ Jl,I'lll'i\·O:A.r,1 stead calling them stores. In keeping with the "Nordstrom's" experience, BMW wants its consumers to feel a shopping/ ownership experience closer to a Nordstrom's shopping trip, not the image a trip to the dealership often creates. Ms. Ball decided to collect data on three variables at Whitner Autoplex: seIling price ($000), buyer's age, and car type (domestic, coded as 1, or foreign, coded as 0). A portion of the data set is shown in the adjacent Excel worksheet. The entire data set is available on the student CD (included with the book), at '"'i''~'~fK'9J1irl','()'!ilc~~t:ii~,!J?x5~!):i/'''''''':'''''''''''''''''"'EX ... _..L;i~ the McGraw-Hili website, and in Appen""R;;.;:"d::..,'_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _~N.::::;UM:..__ _:;J dix N at the end of the text. !!<3" ~ Ill'

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25

Describing Data: Frequency Distributions and Graphic Presentation

Constructing a Frequency Distribution Recall from Chapter 1 that we refer to techniques used to describe a set of data as descriptive statistics. To put it another way, we use descriptive statistics to organize data in various ways to point out where the data values tend to concentrate and help distinguish the largest and the smallest values. The first procedure we use to describe a set of data is a frequency distribution. FREQUENCY DISTRIBUTION A grouping of data into mutually exclusive classes showing the number of observations in each.

How do we develop a frequency distribution? The first step is to tally the data into a table that shows the classes and the number of observations in each class. The steps in constructing a frequency distribution are best described by using an example. Remember, our goal is to construct tables, charts, and graphs that will quickly reveal the shape of the data.

EXAMPLE

In the Introduction we described a situation where Ms. Kathryn Ball of AutoUSA wants to develop some tables, charts, and graphs to show the typical selling price on various dealer lots. Table 2-1 reports only the price of the 80 vehicles sold last month at Whitner Autoplex. What is the typical selling price? What is the highest seiling price? What is the lowest selling price? Around what value do the selling prices tend to cluster? TABLE 2-1 Prices of Vehicles Sold Last Month at Whitner Autoplex Lowest

$23,197 18,021 20,047 19,873 20,004 20,203 24,052 20,356 20,962 21,740 24,220 21,556

$23,372 28,683 24,285 25,251 17,357 23,765 25,799 21,442 22,845 22,374 30,655 21,639

$20,454 30,872 24,324 25,277 20,155 25,783 15,794 21,722 26,285 24,571 22,442 24,296

$23,591 19,587 24,609 28,034 19,688 26,661 18,263 19,331 27,896 25,449 17,891

$26,651 23,169 28,670 24,533 23,657 32,277 35925 22,817 29,076 28,337 20,818

$27,453 35,851 15546 27,443 26,613 20,642 17,399 19,766 32,492 20,642 26,237

$17,266 19,251 15,935 19,889 20,895 21,981 17,968 20,633 18,890 23,613 20,445

Highest

SOLUTION

The steps for organizing data into a frequency distribution.

We refer to the unorganized information in Table 2-1 as raw data or ungrouped data. With a little searching, we can find the lowest selling price ($15,546) and the highest selling price ($35,925), but that is about all. It is difficult to determine a typical selling price. It is also difficult to visualize where the selling prices tend to cluster. The raw data are more easily interpreted if organized into a frequency distribution. Step 1: Decide on the number of classes. The goal is to use just enough groupings or classes to reveal the shape of the distribution. Some judgment is needed here. Too many classes or too few classes might not reveal the basic shape of the data set. In the vehicle selling price example, three classes would not give much insight into the pattern of the d.ata (see Table 2-2).

26

Chapter 2

TABLE 2-2 An Example of Too Few Classes Vehicle Selling Price ($)

15,000 up to 24,000 24,000 up to 33,000 33,000 up to 42,000 Total

Number of Vehicles

48 30 2

80

A useful recipe to determine the number of classes (k) is the "2 to the k rule." This guide suggests you select the smallest number (k) for the number of classes such that 2k (in words, 2 raised to the power of k) is greater than the number of observations (n). In the Whitner Autoplex example, there were 80 vehicles sold. So n = 80. If we try k = 6, which means we would use 6 classes, then 26 = 64, somewhat less than 80. Hence, 6 is not enough classes. If we let k =7, then 27 = 128, which is greater than 80. So the recommended number of classes is 7. Step 2: Determine the class interval 'or width. Generally the class interval or width should be the same for all classes. The classes all taken together must cover at least the distance from the lowest value in the raw data up to the highest value. Expressing these words in a formula:

i;z:H-L k where i is the class interval, H is the highest observed value, L is the lowest observed value, and k is the number of classes. In the Whitner Autoplex case, the lowest value is $15,546 and the highest value is $35,925. If we need 7 classes, the interval should be at least ($35,925 - $15,546)17 = $2,911. In practice this interval size is usually rounded up to some convenient number, such as a multiple of 10 or 100. The value of $3,000 might readily be used in this case. Unequal class intervals present problems in graphically portraying the distribution and in doing some of the computations which we will see in later chapters. Unequal class intervals, however, may be necessary in certain situations to avoid a large number of empty, or almost empty, classes. Such is the case in Table 2-3. The Internal Revenue Service used unequal-sized class intervals to report the adjusted gross income on individual tax returns. Had they used an equal-sized interval of, say, $1,000, more than 1,000 classes would have been required to describe all the incomes. A frequency distribution with 1,000 classes would be difficult to interpret. In this case the distribution is easier to understand in spite of the unequal classes. Note also that the nl-lmber of income tax returns or "frequencies" is reported in thousands in this particular table. This also makes the information easier to understand. Step 3: Set the individual class limits. State clear class limits so you can put each observation into only one category. This means you must avoid overlapping or unclear class limits. For example, classes such as $1,300-$1,400 and $1,400-$1,500 should not be used because it is not clear whether the value $1,400 is in the first or second class. Classes stated as $1,300-$1,400 and $1,500-$1,600 are frequently used, but may also be confusing without the additional common convention of rounding all data at or above $1,450 up to the second class and data below $1,450 down to the first class. In this text we will generally use the format $1,300 up to $1,400 and $1,400 up to $1,500 and so on. With this format it is clear that $1,399 goes into the first class and $1,400 in the second.

27

Describing Data: Frequency Distributions and Graphic Presentation

TABLE 2-3 Adjusted Gross Income for Individuals Filing Income Tax Returns Number of Returns (in thousands)

Adjusted Gross Income No adjusted gross income 1 up to $ 5,000 up to 10,000 up to 15,000 up to 20,000 up to 25,000 up to 30,000 up to 40,000 up to 50,000 up to 75,000 up to 100,000 up to 200,000 up to 500,000 up to 1,000,000 up to 2,000,000 up to 10,000,000 or more

5,000 10,000 15,000 20,000 25,000 30,000 40,000 50,000 75,000 100,000 200,000 500,000 1,000,000 2,000,000 10,000,000

$

178.2 1,204.6 2,595.5 3,142.0 3,191.7 2,501.4 1,901.6 2,502.3 1,426.8 1,476.3 338.8 223.3 55.2 12.0 5.1 3.4 0.6

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Because we round the class interval up to get a convenient class ! size, we cover a larger than necessary range. For example, 7 classes of width $3,000 in the Whitner Autoplex case result in a range of 7($3,000) r = $21,000. The actual range is $20,379, found by $35,925 - $15,546. Comparing that value to $21,000 we have an excess of $621. Because i we need to cover only the distance (H - L), it is natural to put approxi- ,. mately equal amounts of the excess in each of the two tails. Of course, I' we should also select convenient class limits. A guideline is to make the lower limit of the first class a multiple of the class interval. Sometimes this J is not possible, but the lower limit should at least be rounded. So here are the classes we could use for this data.

I l

$15,000 up to 18,000 18,000 up to 21,000 21,000 up to 24,000 24,000 up to 27,000 27,000 up to 30,000 30,000 up to 33,000 33,000 up to 36,000

f

Step 4: Tally the vehicle selling prices into the classes. To begin, the selling ! price of the first vehicle in Table 2-1 is $23,197. It is tallied in the $21 ,000 t up to $24,000 class. The second selling price in the first column of Table ! 2-1 is $18,021. It is tallied in the $18,000 up to $21,000 class. The other II selling prices are tallied in a similar manner. When all the selling prices are tallied, the table would appear as:

t

28

Chapter 2

Tallies

Class $15,000 up to $18,000 $18,000 up to $21,000 $21,000 up to $24,000 $24,000 up to $27,000 $27,000 up to $30,000 $30,000 up to $33,000 $33,000 up to $36,000

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Step 5: Count the number of items in each class. The number of observations in each class is called the class frequency. In the $15,000 up to $18,000 class there are 8 observations, and in the $18,000 up to $21,000 class there are 23 observations. Therefore, the class frequency in the first class is 8 and the class frequency in the second class is 23. There is a total of 80 observations or frequencies in the entire set of data.

Often it is useful to express the data in thousands, or some convenient unit of measurement, rather than the actual data. Table 2-4, for example, reports the vehicle selling prices in thousands of dollars, rather than dollars. TABLE 2-4 Frequency Distribution of Selling Prices at Whitner Autoplex Last Month Selling Prices ($ thousands)

Frequency

15 up to 18 18 up to 21 21 up to 24 24 up to 27 27 up to 30 30 up to 33 33 up to 36

8 23 17 18 8 4 2

Total

80

Now that we have organized the data into a frequency distribution, we can summarize the pattern in the selling prices of the vehicles for the AutoUSA lot of Whitner Autoplex in Raytown, Missouri. Observe the following:

1. The selling prices range from about $15,000 up to about $36,000. 2. The selling prices are concentrated between $18,000 and $27,000. A total of 58, or 72.5 percent, of the vehicles sold within this range. 3. The largest concentration, or highest frequency, is in the $18,000 up to $21,000 class. The middle of this class is $19,500. So we say that a typical selling price is $19,500. 4. Two of the vehicles sold for $33,000 or more, and 8 sold for less than $18,000. By presenting this information to Ms. Ball, we give her a clear picture of the distribution of selling prices for last month. We admit that arranging the information on selling prices into a frequency distribution does result in the loss of some detailed information. That is, by organizing the data into a frequency distribution, we cannot pinpoint the exact selling price, such as $23,197 or $26,372. Further, we cannot tell that the actual selling price for the least expensive vehicle was $15,546 and for the most expensive $35,925. However, the lower limit of the first class and the upper limit of the largest class convey essentially the same meaning. Likely, Ms. Ball will make the same judgment if she knows the lowest price is about $15,000 that she will if she knows the exact price is $15,546. The advantages of condensing the data into a more understandable and organized form more than offset this disadvantage.

29

Describing Data: Frequency Distributions and Graphic Presentation

Self-Review 2-1

The answers are at the end of the chapter. The commissions earned for the first quarter of last year by the 11 members of the sales staff at Master Chemical Company are: $1,650 (a) (b) (c) (d)

$1,475

$1,510

$1,670

$1,595

$1,760

$1,540

$1,495

$1,590

$1,625

$1,510

What are the values such as $1,650 and $1,475 called? Using $1,400 up to $1,500 as the first class, $1,500 up to $1,600 as the second class, and so forth, organize the quarterly commissions into a frequency distribution. What are the numbers in the right column of your frequency distribution called? Describe the distribution of quarterly commissions, based on the frequency distribution. What is the largest amount of commission earned? What is the smallest? What is the typical amount earned?

Class Intervals and Class Midpoints We will use two other terms frequently: class midpoint and class interval. The midpOint is halfway between the lower limits of two consecutive classes. It is computed by adding the lower limits of consecutive classes and dividing the result by 2. Referring to Table 2-4, for the first class the lower class limit is $15,000 and the next limit is $18,000. The class midpoint is $16,500, found by ($15,000 + $18,000)12. The midpoint of $16,500 best represents, or is typical of, the selling price of the vehicles in that class. To determine the class interval, subtract the lower limit of the class from the lower limit of the next class. The class interval of the vehicle selling price data is $3,000, which we find by subtracting the lower limit of the first class, $15,000, from the lower limit of the next class; that is, $18,000 - $15,000 = $3,000. You can also determine the class interval by finding the difference between consecutive midpoints. The midpOint of the first class is $16,500 and the midpoint of the second class is $19,500. The difference is $3,000.

ASoftware Example As we mentioned in Chapter 1, there are many software packages that perform statistical calculations. Throughout this text we will show the output from Microsoft Excel, from MegaStat, which is an add-in to Microsoft Excel, and from MINITAB. The commands necessary to generate the outputs are given in the Software Commands section at the end of each chapter. The following is a frequency distribution, produced by MegaStat, showing the prices of the 80 vehicles sold last month at the Whitner Autoplex lot in Raytown, Missouri. The form of the output is somewhat different than the frequency distribution of Table 2-4, but the overall conclusions are the same.

Self-Review 2-2

Barry Bonds of the San Francisco Giants established a new single season home run record by hitting 73 home runs during the 2001 Major League Baseball season. The longest of these home runs traveled 488 feet and the shortest 320 feet. You need to construct a frequency distribution of these home run lengths. (a) (b) (c)

How many classes would you use? What class interval would you suggest? What actual classes would you suggest?

Chapter 2

30

;~ f)/e

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,}i Frequency Distribution. Quantitative -~ § 6.

'7' '13' 9-

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Price

15,000 16,000 21,000 24,000 27,000 30,000 33,000

/Jep~( midpoint width frequency percent < 16,000 16,500 3,000 6 10.0 < 21,000 19,500 3,000 23 26.6 < 24,000 22,500 3,000 17 21.3 < 27,000 25,500 3,000 16 22.5 < 30,000 28,500 3,000 8 10.0 < 33,000 31,500 3,000 4 5.0 < 36,000 34,500 3.000 2 2.5

Hl'liii

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cumulative

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6 31 46 66 74 76 60

10.0 38.8 60.0 82.5 92.5 97.5 100.0

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Relative Frequency Distribution A relative frequency distribution converts the frequency to a percent.

It may be desirable to convert class frequencies to relative class frequencies to show the fraction of the total number of observations in each class. In our vehicle sales example, we may want to know what percent of the vehicle prices are in the $21 ,000 up to $24,000 class. In another study, we may want to know what percent of the employees used 5 up to 10 personal leave days last year. To convert a frequency distribution to a relative frequency distribution, each of the class frequencies is divided by the total number of observations. From the distribution of vehicle selling prices, the relative frequency for the $15,000 up to $18,000 class is 0.10, found by dividing 8 by 80. That is, the price of 10 percent of the vehicles sold at Whitner Autoplex is between $15,000 and $18,000. The relative frequencies for the remaining classes are shown in Table 2-5.

TABLE 2-5 Relative Frequency Distribution of the Prices of Vehicles Sold Last Month at Whitner Autoplex Selling Price ($ thousands) 15 up to 18 18 up to 21 21 up to 24 24 up to 27 27 upto 30 30 up to 33 33 up to 36 Total

Self-Review 2-3

Frequency 8 23 17 18 8 4 2

-

80

Relative Frequency 0.1000 .... 0.2875 0.2125 0.2250 0.1000 0.0500 0.0250

--

Found by 8/80 23/80 17/80 18/80 8/80 4/80 2/80

1.0000

Refer to Table 2-5, which shows the relative frequency distribution for the vehicles sold last month at Whitner Autoplex. (a) How many vehicles sold for $18,000 up to $21 ,OOO? (b) What percent of the vehicles sold for a price between $18,000 and $21 ,OOO? (c) What percent of the vehicles sold for $30,000 or more?

31

Describing Data: Frequency Distributions and Graphic Presentation

Exercises The answers to the odd-numbered exercises are at the end of the book.

1. 2. 3.

4.

5.

A set of data consists of 38 observations. How many classes would you recommend for the frequency distribution? A set of data consists of 45 observations between $0 and $29. What size would you recommend for the class interval? A set of data consists of 230 observations between $235 and $567. What class interval would you recommend? A set of data contains 53 observations. The lowest value is 42 and the largest is 129. The data are to be organized into a frequency distribution. a. How many classes would you suggest? b. What would you suggest as the lower limit of the first class? Wachesaw Manufacturing, Inc. produced the following number of units the last 16 days.

27 26

6.

27 26

28 28

27 31

25

30

25 26

28 26

The information is to be organized into a frequency distribution. a. How many classes would you recommend? b. What class interval would you suggest? c. What lower limit would you recommend for the first class? d. Organize the information into a frequency distribution and determine the relative frequency distribution. e. Comment on the shape of the distribution. The Quick Change Oil Company has a number of outlets in the metropOlitan Seattle area. The numbers of oil changes at the Oak Street outlet in the past 20 days are:

65 70

7.

27 28

98 62

55 66

62 80

79 94

59 79

51

63

90 73

72 71

56 85

The data are to be organized into a frequency distribution. a. How many classes would you recommend? b. What class interval would you suggest? c. What lower limit would you recommend for the first class? d. Organize the number of oil changes into a frequency distribution. e. Comment on the shape of the frequency distribution. Also determine the relative frequency distribution. The manager of the Bilo Supermarket in Mt. Pleasant, Rhode Island, gathereq the following information on the number of times a customer visits the store during a month. The re. sponses of 51 customers were:

5

3

1

14

8

4

1

10

3 1 7 8

1 2 6 9

445 444 5 9 11 2 12

6

4

2

5

6

3

3

12

4

6 5 7

6 3 6

6

7

1

4 5

5 15

6 1

a. Starting with 0 as the lower limit of the first class and using a class interval of 3, organize the data into a frequency distribution.

b. Describe the distribution. Where do the data tend to cluster? S.

c. Convert the distribution to a relative frequency distribution. The food services division of Cedar River Amusement Park, Inc. is studying the amount families who visit the amusement park spend per day on food and drink. A sample of 40 families who visited the park yesterday revealed they spent the following amounts.

32

Chapter 2

$77

$18

$63

$84

$38

$54

$50

$59

$54

$56

$36

$26

$50

$34

$44

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~

~

~

~

~

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~

~

~

~

~

00

00

%

00

~

n

~

~

~

n

a. Organize the data into a frequency distribution, using seven classes and 15 as the lower limit of the first class. What class interval did you. ~elect? b. Where do the data tend to cluster? c. Describe the distribution. d. Determine the relative frequency distribution.

Graphic Presentation of a Frequency Distribution Recall that a frequency distribution gives insight about the shape of the set of observations by showing them organized into a set of nonoverlapping classes. A frequency distribution is easier to understand than the initial raw or ungrouped data. For example, you can more easily determine which values are common or typical and which are extraordinary or infrequent. In this section we describe three charts that graphically portray a frequency distribution. These charts are the histogram, frequency polygon, and cumulative frequency polygon.

Histogram One of the most common ways to portray a frequency distribution is a histogram.

HISTOGRAM A graph in which the classes are marked on the horizontal axis and the class frequencies on the vertical axis. The class frequencies are represented by the heights of the bars, and the bars are drawn adjacent to each other. Thus, a histogram describes a frequency distribution using a series of adjacent rectangles, where the height of each rectangle is proportional to the frequency the class represents. The construction of a histogram is best illustrated by reintroducing the prices of the 80 vehicles sold last month at Whitner Autoplex .

,..----------._--_.-.---_._-- ._-----------1.

\

Below is the frequency distribution.

F

rt Selling Prices ($ thousands) 15 up to 18 18 up to 21 21 up to 24 24 up to 27 27 up to 30 30 up to 33 33 up to 36 Total

Frequency 8 23 17 18 8 4 2 80

Construct a histogram. What conclusions can you reach based on the information presented in the histogram?

33

Describing Data: Frequency Distributions and Graphic Presentation

SOLUTION

f

The class frequencies are scaled along the vertical axis (Y-axis) and either the class limits or the class midpoints along the horizontal axis. To illustrate the construction of ~ the histogram, the first three classes are shown in Chart 2-1. ~

I I"

en

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23

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,

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10

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18

15

21

x

24

Selling price ($ thousands)

r ~,

~

t i

CHART 2-1 Construction of a Histogram From Chart 2-1 we note that there are eight vehicles in the $15,000 up to $18,000 class. Therefore, the height of the column for that class is 8. There are 23 vehicles in the $18,000 up to $21,000 class. So, logically, the height of that column is 23. The height of the bar represents the number of observations in the class. This procedure is continued for all classes. The complete histogram is shown in Chart 2-2. Note that there is no space between the bars. This is a feature of the histogram. Why is this so? Because the variable plotted on the horizontal axis selling price (in $000) is quantitative and of the interval, or in this case the ratio, scale of measurement. In bar charts, which are described in a later section, the vertical bars are separated.

23

Ol

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::::J

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13

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20

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ff !'

2

15

18

21

24

27 Selling price ($ thousands)

30

33

t 36

x

t. t ~

t

I'

I'

P

CHART 2-2 Histogram of the Selling Prices of 80 Vehicles at Whitner Autoplex From the histogram in Chart 2-2, we conclude:

(

t

Ii

r

1. The lowest selling price is about $15,000, and the highest is about $36,000. 2. The largest class frequency is the $18,000 up to $21,000 class. A total of 23 of the f ~: 80 vehicles sold are within this price range. 3. Fifty-eight of the vehicles, or 72.5 percent, had a selling price between $18,000 f: and $27,000. ~

E

34

Chapter 2

Thus, the histogram provides an easily interpreted visual representation of a frequency distribution. We should also point out that we would have reached the same conclusions and the shape of the histogram would have been the same had we used a relative frequency distribution instead of the actual frequencies. That is, if we had used the relative frequencies of Table 2-5, found on page 30, we would have had a histogram of the same shape as Chart 2-2. The only difference is that the vertical axis would have been reported in percent of vehicles instead of the number of vehicles.

We used the Microsoft Excel system to produce the histogram for the Whitner Autoplex vehicle sales data (which is shown on page 30). Note that class midpoints are used as the labels for the classes. The software commands to create this output are given in the Software Commands section at the end of the chapter.

Frequency Polygon In a frequency polygon the class midpoints are connected with a line segment.

A frequency polygon is similar to a histogram. It consists of line segments connecting the points formed by the intersections of the class midpoints and the class frequencies. The construction of a frequency polygon is illustrated in Chart 2-3 (on page 35). We use the vehicle prices for the cars sold last month at Whitner Autoplex. The midpoint of each class is scaled on the X-axis and the class frequencies on the Y-axis. Recall that the class midpoint is the value at the center of a class and represents the values in that class. The class frequency is the number of observations in a particular class. The frequency distribution of selling prices at Whitner Autoplex are: Selling Prices ($ thousands) 15 up to 18 18 up to 21 21 up to 24 24 up to 27 27 up to 30 30 up to 33 33 up to 36

Midpoint

Frequency

16.5 19.5 22.5 25.5 28.5 31.5 34.5

8 23 17 18 8 4 2

Total

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Selling Price of 80 Vehicles Sold at the Whitner Autoplex Lot 25,-----------------------~

>. 20 <J

~ 15

::;,

~ 10 lL

5

o 16.5

19.5

22.5

25.5

2B.5

Selling Price ($000)

31.5

34.5

~

x

35

Describing Data: Frequency Distributions and Graphic Presentation

Doath from dlseoso April 1854 to

March 18S5

40 &3

30

'(3

c: ~

c:r

20

£:

10 13.5

16.5

19.5

22.5 25.5 28.5 Selling price ( $0008)

31.5;: 34.5

37.5

40.5

GHART 2-3 Frequency Polygon of the SeIling Prices of 80 Vehicles at Whitner Autoplex As noted previously, the $15,000 up to $18,000 class is represented by the midpoint $16,500. To construct a frequency polygon, move horizontally on the graph to the midpoint, $16.5, and then vertically to 8, the class frequency, and place a dot. The X and the Yvalues of this point are called the coordinates. The coordinates of the next point are X $19.5 and Y = 23. The process is continued for all classes. Then the points are connected in order. That is, the point representing the lowest class is joined to the one representing the second class and so on. Note in Chart 2-3 that, to complete the frequency polygon, midpoints of $13.5 and $37.5 are added to the X-axis to "anchor" the polygon at zero frequencies. These two values, $13.5 and $37.5, were derived by subtracting the class interval of $3.0 from the lowest midpoint ($16.5) and by adding $3.0 to the highest midpoint ($34.5) in the frequency distribution.

36

Chapter 2

40 • •

30

.~

Fowler Auto Mall Whitner Autoplex

(.)

r:: Q)

:::I C'

20

Q)

II:

10

13.5

19.5

22.5

25.5

28.5

31.5

34.5

37.5

Selling price ($0008)

CHART 2-4 Distribution of Vehicle Selling Prices at Whitner Autoplex and Fowler Auto Mall

Both the histogram and the frequency polygon allow us to get a quick picture of the main characteristics of the data (highs, lows, points of concentration, etc.). Although the two representations are similar in purpose, the histogram has the advantage of depicting each class as a rectangle, with the height of the rectangular bar representing the number in each class. The frequency polygon, in turn, has an advantage over the histogram. It allows us to compare directly two or more frequency distributions. Suppose Ms. Ball of AutoUSA wants to compare the Whitner Autoplex lot in Raytown, Missouri, with a similar lot, Fowler Auto Mall in Grayling, Michigan. To do this, two frequency polygons are constructed, one on top of the other, as in Chart 2-4. It is clear from Chart 2-4 that the typical vehicle selling price is higher at the Fowler Auto Mall. The total number of frequencies at the two dealerships is about the same, so a direct comparison is possible. If the difference in the total number of frequencies is quite large, converting the frequencies to relative frequencies and then plotting the two distributions would allow a clearer comparison.

Self-Review 2-4

The annual imports of a selected group of electronic suppliers are shown in the following frequency distribution.

Imports ($ millions)

2 up to 5 5 up to 8 8 up to 11 11 up to 14 14upto17 (a) (b) (c)

Number of Suppliers 6 13 20 10 1

Portray the imports as a histogram. Portray the imports as a relative frequency polygon. Summarize the important facets of the distribution (such as classes with the highest and lowest frequencies).

Describing Data: Frequency Distributions and Graphic Presentation

37

Exercises 9. Molly's Candle Shop has several retail stores in the coastal areas of North and South Carolina. Many of Molly's customers ask her to ship their purchases. The following chart shows the number of packages shipped per day for the last 100 days.

28

30

§' 20 Cl)

::::I

t:r

J:

10

o Number of packages

a. What is this chart called? b. What is the total number of frequencies?

c. What is the class interval? d. What is the class frequency for the 10 up to 15 class?

e. What is the relative frequency of the 10 up to 15 class? f. What is the midpoint of the 10 up to 15 class? g. On how many days were there 25 or more packages shipped? 10. The audit staff of Southeast Fire and Casualty, Inc. recently completed a study of the settlement amount, in $000, of claims. The staff report included the following chart.

o

4.0

2.0

6.0 $000

12.0

8.0

a. What is the midpoint of the 2 up to 4 class? b. How many claims were in the 2.0 up to 4.0 class?

c. Approximately how many claims were studied? d. What is the class interval?

e. What is this chart called? 11. The following frequency distribution reports the number of frequent flier miles, reported in thousands, for employees of Brumley Statistical Consulting, Inc. during the first quarter of 2004.

Frequent Flier Miles (000)

Number of Employees

oup to 3

5

3 up to 6 6 up to 9 9 up to 12 12 up to 15

12

Total

23 8 2 50

38

Chapter 2

a. b. c. d.

How many employees were studied? What is the midpoint of the first class? Construct a histogram. A frequency polygon is to be drawn. What are the coordinates of the plot for the first class? e. Construct a frequency polygon. f. Interpret the frequent flier miles accumulated using the two charts. 12. Ecommerce.com, a large Internet retailer, is studying the lead time (elapsed time between when an order is placed and when it is filled) for a sample of recent orders. The lead times are reported in days. .

Lead Time (days)

Frequency

oup to 5

6 7 12 8 7

5 up to 10 10 up to 15 15upt020 20 up to 25 Total

a. b. c. d. e. f.

-

40

How many orders were studied? What is the midpoint of the first class? What are the cOQrdinates of the first class for a frequency polygon? Draw a histogram. Draw a frequency polygon. Interpret the lead times using the two charts.

Cumulative Frequency Distributions Consider once again the distribution of the selling prices of vehicles at Whitner Autoplex. Suppose we were interested in the number of vehicles that sold for less than $21,000, or the value below which 40 percent of the vehicles sold. These numbers can be approximated by developing a cumulative frequency distribution and portraying it graphically in a cumulative frequency polygon. The frequency distribution of the vehicle selling prices at Whitner Autoplex is repeated from Table 2-4. Selling Prices ($ thousands) 15 up to 18 18 up to 21 21 up to 24 24 up to 27 27 up to 30 30 up to 33 33 up to 36 Total

Frequency 8 23 17 18 8 4 2 80

Construct a cumulative frequency polygon. Fifty percent of the vehicles were sold for less than what amount? Twenty-five of the vehicles were sold for less than what amount?

39

Describing Data: Frequency Distributions and Graphic Presentation

SOLUTION

As the name implies, a cumulative frequency distribution and a cumulative frequency polygon require cumulative frequencies. To construct a cumulative frequency distribution, refer to the preceding table and note that there were eight vehicles sold for less than $18,000. Those 8 vehicles, plus the 23 in the next higher class, for a total of 31, were sold for less than $21,000. The cumulative frequency for the next higher class is 48, found by 8 + 23 + 17. This process is continued for all the classes. All the vehicles were sold for less than $36,000. (See Table 2-6.)

TABLE 2-6 Cumulative Frequency Distribution for Vehicle Selling Price Selling Price ($ thousands)

15 up to 18 18 up to 21 21 up to 24 24 up to 27 27 up to 30 30 up to 33 33 up to 36 Total

Frequency

8 23 17 18 8 4 2 80

Cumulative Frequency

8 31 48 66 74 78 80

Found by

~8+23

8+23+17 8 + 23 + 17 + 18

• •

·

~"'.

To plot a cumulative frequency distribution, scale the upper limit of each class along the X-axis and the corresponding cumulative frequencies along the Y-axis. To provide additional information, you can label the vertical axis on the left in units and the vertical axis on the right in percent. In the Whitner Autoplex example, the vertical ~xis on the left is labeled from 0 to 80 and on the right from 0 to 100 percent. The value of 50 percent corresponds to 40 vehicles sold. To begin the plotting, 8 vehicles sold for less than $18,000, so the first plot is at X = 18 and Y = 8. The coordinates for the next plot are X = 21 and Y 31. The rest of the points are plotted and then the dots connected to form the chart (see Chart 2-5). To find the selling price below which half the cars sold, we draw a horizontal line from the 50 percent mark on the right-hand vertical axis over to the polygon, then drop down to the X-axis and read the selling price. The value on the X-axis is about 22.5, so we estimate that 50 percent of the vehicles sold for less than $22,500. To find the price below which 25 of the vehicles sold, we locate the value of 25 on the left-hand vertical axis. Next, we draw a horizontal line from the value of 25 to the

40

. Chapter 2

___-.-,.100

80 70 60

75

"C

"C

0

rn rn Q)

0

rn rn

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10

15

18

21 24 27 30 Selling price ($000)

33

36

CHART 2-5 Cumulative Frequency Distribution for Vehicle Selling Price polygon, and then drop down to the X-axis and read the price. It is about 20.5, so we estimate that 25 of the vehicles sold for less than $20,500. We can also make estimates of the percent of vehicles that sold for less than a particular amount. To explain, suppose we want to estimate the percent of vehicles that sold for less than $28,500. We begin by locating the value of 28.5 on the X-axis, move vertically to the polygon, and then horizontally to the vertical axis on the right. The value is about 87 percent, so we conclude that 87 percent of the vehicles sold for less than $28,500.

Self-Review 2-5

The hourly wages of 15 employees at the Home Depot in Brunswick, Georgia, is organized into the following table.

(a) (b) (c)

Hourly Wages

Number of Employees

$ 8 up to $10 10 up to 12 12 up to 14 14 up to 16

3 7 4 1

What is the table called? Develop a cumulative frequency distribution and portray the distribution in a cumulative frequency polygon. On the basis of the cumulative frequency polygon, how many employees earn $11 an hour or less? Half of the employees earn an hourly wage of how much or more? Four employees earn how much or less?

[

Describing Data: Frequency Distributions and Graphic Presentation

41

Exercises 13. The following chart shows the hourly wages of a sample of certified welders in the Atlanta, Georgia, area.

j ;~lL:=1~Oj o

5

10

15

20

25

30

Hourly wage

a. How many welders were studied? b. What is the class interval?

c. About how many welders earn less than $10.00 per hour? d. About 75 percent of the welders make less than what amount? e. Ten of the welders studied made less than what amount? f. What percent of the welders make less than $20.00 per hour? 14. The following chart shows the selling price ($000) of houses sold in the Billings, Montana, area.

Selling price ($OOOs)

a. How many homes were studied? b. What is the class interval?

c. One hundred homes sold for less than what amount? d. About 75 percent of the homes sold for less than what amount?

e. Estimate the number of homes in the $150,000 up to $200,000 class. f. About how many homes sold for less than $225,000? 15. The frequency distribution representing the number of frequent flier miles accumulated by employees at Brumley Statistical Consulting Company is repeated from Exercise 11.

Frequent Flier Miles (000)

oup to 3 3 up to 6 6 up to 9 9 up to 12 12 up to 15 Total

Frequency 5 12

23 8 2 50

42

Chapter 2

a. b. c. d.

How many employees accumulated less than 3,000 miles? Convert the frequency distribution to a cumulative frequency distribution. Portray the cumulative distribution in the form of a cumulative frequency polygon. Based on the cumulative frequency polygon, about 75 percent of the employees accumulated how many miles or less? 16. The frequency distribution of order lead time at Ecommerce.com from Exercise 12 is repeated below.

Lead Time (days)

Frequency

oup to 5

6 7 12

5upto10 10 up to 15 15 up to 20 20 up to 25

8 7

Total

a. b. c. d.

40

How many orders were filled in less than 10 days? In less than 15 days? Convert the frequency distribution to a cumulative frequency distribution. Develop a cumulative frequency polygon. About 60 percent of the orders were filled in less than how many days?

Other Graphic Presentations of Data The histogram, the frequency polygon, and the cumulative frequency polygon all have strong visual appeal. They are designed to capture the attention of the reader. In this section we will examine some other graphical forms, namely the line chart, the bar chart, and the pie chart. These charts are seen extensively in USA Today, U.S. News and World Report, Business Week, and other newspapers, magazines, and government reports.

Line Graphs Charts 2-6 and 2-7 are examples of line charts. Line charts are particularly effective for business and economic data because they show the change or trends in a variable over time. The variable of interest, such as the number of units sold or the total value of sales, is scaled along the vertical axis and time along the horizontal axis. Chart 2-6 shows the Dow Jones Industrial Average and the NASDAQ, the two most widely reported measures of stock activity. The time of the day, beginning with the opening bell at 9:30 is shown along the horizontal axis and the value of the Dow on the vertical

www.BigCharts.COmTheWOrld·ecoolestlnv ••tmentchartlngandr ....rclt.lt••

DJIA

-:-:'

8,790.44

+5.55 +0.06%

12:0[;: PIlET

NASDAQ

1,447.67 12:0'~

-.i-

Pl1ET

8,900

1,470

8,850

1,460

8,800

1,450

8,750 10

II

12

1

2

3

-0.05 -0.00%

8,700

1,440 10

11

12

1

2

3

1,430

CHART 2-6 Line Chart for the Dow Jones Industrial Average and the NASDAQ

Describing Data: Frequency Distributions and Graphic Presentation

43

Coastal Carolina Tuition tor In-State and Out-ot-State Undergraduate Students trom 1996 to 2004

CHART 2-7 Tuition for In-State and Out-of-State Students at Coastal Carolina University axis. For this day the Dow was at 8,790.44, up 5.55 points, at 12:09 PM. The NASDAQ was at 1,447.67, down .05 points, as of 12:09 PM. Line graphs are widely used by investors to support decisions to buy and sell stocks and bonds. Chart 2-7 is also a line chart. It shows the tuition per semester for undergraduate students at Coastal Carolina University from 1996 to 2004. Note that there has been an increase each year for the period. The increase for in-state students from 2003 to 2004 was $455 or 17.5 percent. This is the largest dollar and yearly percent increase during the period. Since 1996, the overall in-state tuition increase was $1 ,595 or 109.6 percent. Quite often two or more series of data are plotted on the.. same line chart. Thus one chart can show the trend of several different variables. 1bis allows for the comparison of several variables over the same period of time. ChFlrt 2-7 also shows the out-of-state tuition per semester. As might be expected for a state-supported university, such as Coastal Carolina, the out-of-state tuition is always higher. Tuition for outof-state students increased $665 or 10.3 percent from 2003 to 2004. For the period from 1996 to 2004 tuition increased $3,180 or 81.1 percent. So tuition increased by a larger dollar amount for out-of-state students but a larger percent for in-state students.

Bar Charts A bar chart can be used to depict any of the levels of measurement-nominal, ordinal, interval, or ratio. (Recall, we discussed the levels of measurement beginning on page 9 in Chapter 1.) From the Census Bureau Current Population Reports, the typical annual earnings for someone over the age of 18 are $22,895 if a high school diploma is the highest degree earned. With a bachelor's degree the typical earnings increase to $40,478, and with a professional or master's degree the typical amount increases to $73,165. This information is summarized in Chart 2-8. With this chart it is easy to see that a person with a bachelor's degree can expect to earn almost twice as

44

Chapter 2

much in a year as someone with a high school diploma. The expected earnings of someone with a master's or professional degree are nearly twice as much as someone with a bachelor's degree and three times that of someone with a high school diploma. In Chart 2-8 the variable of interest is the level of education. The level of education is an ordinal scale variable and is reported on the horizontal axis. The bars are not adjacent. That is, there is space between the bar for the earnings of high school graduates and the bar for the earnings of those with a Bachelor's degree. This is different from Chart 2-2, which is a histogram. In a histogram, the horizontal axis refers to the ratio scale variable-vehicle selling price. This is a continuous variable; hence th~re is no space between the bars. Another difference between a bar chart and a histogram is the vertical scale. In a histogram the vertical axis is the frequency or number of observations. In a bar chart the vertical scale refers to an amount.

_ I'}

x

CHART 2-8 Typical Annual Earnings Based on Educational Level

Pie Charts A pie chart is especially useful for illustrating nominal-level data. We explain the details of constructing a pie chart using the information in Table 2-7, which shows a breakdown of the expenses of the Ohio State Lottery for 2002. TABLE 2-7 Ohio State Lottery Expenses in 2002 Amount ($ million)

Percent of Share

Prizes Payments to Education Bonuses/Commissions Operating Expenses

1,148.1 635.2 126.6 103.3

57 32 6 5

Total

2,013.2

100

Use of Sales

The first step is to record the percentages 0, 5, 10, 15, and so on evenly around the circumference of a circle. To plot the 57 percent share awarded for prizes, draw a line from the center of the circle to 0 and another line from the center of the circle to 57

45

Describing Data: Frequency Distributions and Graphic Presentation

percent. The area in this "slice" represents the lottery proceeds that were awarded in prizes. Next, add the 57 percent of expenses awarded in prizes to the 32 percent payments to eduoation; the result is 89 percent. Draw a line from the center of the circle to 89 percent, so the area between 57 percent and 89 percent depicts the payments made to education. Continuing, add the 6 percent for bonuses· and commissions, which gives us a total of 95 percent. Draw a line from the center of the circle to 95, so the "slice" between 89 percent and 95 percent represents the payment of bonuses and commissions. The remaining 5 percent is for operating expenses.

25%

50%

Because the area of the pie represents the relative share of each component, we can . easily compare them: • The largest expense of the Ohio Lottery is for prizes. • About one-third of the proceeds are transferred to education. • Operating expenses account for only 5 percent of the proceeds. The Excel software will develop a pie chart and output the result. See the following chart for the information in Table 2-7 .

• 10

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89

Ohio State Lottery Expenses in 2002

46

Chapter 2

Self-Review 2-6

The Clayton County Commissioners want to show taxpayers attending the forthcoming meeting what happens to their tax dollars. The total amount of taxes collected is $2 million. Expenditures are: $440,000 for schools, $1,160,000 for roads, $320,000 for administration, and $80,000 for supplies. A pie chart seems ideal to show the portion of each tax dollar going for schools, roads, administration, and supplies. Convert the dollar amounts to percents of the total andportray the percents in the form ofa pie chart.

Exercises 17. A small business consultant is investigating the performance of several companies. The sales in 2004 (in thousands of dollars) for the selected companies were:

Fourth-Quarter Sales ($ thousands)

Corporation

$ 1,645.2

Hoden Building Products

4,757.0 8,913.0 627.1 24,612.0 191.9

J &RPrinting, Inc.

Long Bay Concrete Construction Mancell Electric and Plumbing Maxwell Heating and Air Conditioning Mizelle Roofing &Sheet Metals

The consultant wants to include a chart in his report comparing the sales of the six companies. Use a bar chart to compare the fourth quarter sales of these corporations and write a brief report summarizing the bar chart. 18. The Blair Corporation, located in Warren, Pennsylvania, sells fashion apparel for men and women plus a broad range of home products (http://www.blair.com). It services its customers by mail. Listed below are the net sales for Blair from 1998 through 2003. Draw a line chart depicting the net sales over the time period and write a brief report.

Year

Net Sales ($ millions)

1998 1999 2000 2001 2002 2003

506.8 522.2 574.6 580.7 568.5 581.9

19. A headline in a Toledo, Ohio, newspaper reported that crime was on the decline. Listed below are the number of homicides from 1986 to 2003. Draw a line chart to summarize the data and write a brief summary of the homicide rates for the last 18 years.

Year

Homicides

Year

Homicides

1986 1987 1988 1989 1990 1991 1992 1993 1994

21 34 26 42 37 37 44 45 40

1995 1996 1997 1998 1999 2000 2001 2002 2003

35 30 28 25 21 19 23 27 23

47

Describing Data: Frequency Distributions and Graphic Presentation

20. A report prepared for the governor of a western state indicated that 56 percent of the state's tax revenue went to education, 23 percent to the general fund, 10 percent to the counties, 9 percent to senior programs, and the remainder to other social programs. Develop a pie chart to show the breakdown of the budget. 21. The following table shows the population, in millions, of the United States in 5-year intervals from 1950 to 2000. Develop a line chart depicting the population growth and write a brief report summarizing your findings.

Year

Population (millions)

1950 1955 1960 1965 1970 1975

152.3 165.9 180.7 194.3 205.1 216.0

Year

Population (millions)

1980 1985 1990 1995 2000

227.7 238.5 249.9 263.0 281.4

22. S.hown below are the military and civilian personnel expenditures for the eight largest military locations in the United States. Develop a bar chart and summarize the results in a brief report.

location St.lOUis, MO San Diego, CA Pieo Rivera, CA Arlington, VA

Amount Spent (millions)

$6,087 4,747 3,272 3,284

location Norfolk, VA Marietta, GA Fort Worth, TX Washington, DC

Amount Spent (millions)

$3,228 2,828 2,492 2,347

Chapter Outline I. A frequency distribution is a grouping of data into mutually exclusive classes showing the number of observations in each class. A. The steps in constructing a frequency distribution are: 1. Decide how many classes you wish. 2. Determine the class interval or width. 3. Set the individual class limits. 4. Tally the raw data into the classes. 5. Count the number of tallies in each class. B. The class frequency is the number of observations in each class. C. The class interVal is the difference between the limits of two consecutive classes. D. The class midpoint is halfway between the limits of two consecutive classes. II. A relative frequency distribution shows the percent of the observations in each class. III. There are three methods for graphically portraying a frequency distribution. A. A histogram portrays the number of frequencies in each class in the form of rectangles. B. A frequency polygon consists of line segments connecting the points formed by the intersections of the class midpoints and the class frequencies. C. A cumulative frequency polygon shows the number of observations below a certain value. IV. There are many charts used in newspapers and magazines. ' A. A line chart is ideal for showing the trend of a variable such as sales or income over time. B. Bar charts are similar to line charts and are useful for showing changes in nominal scale data. C~ Pie charts are useful for showing the percent that various components are of the total.

48

Chapter 2

Chapter Exercises 23. A dataset consists of 83 observations. How many classes would you recommend for a frequency distribution?

24. A dataset consists of 145 observations that range from 56 to 490. What size class interval would you recommend?

25. The following is the number of minutes to commute from home to work for a sample of aerospace workers in Houston, Texas.

28 31

25 26

48 21

37 32

41 25

19 31

32 43

26 35

16 42

23 38

23 33

29 28

36

a. How many classes would you recommend? b. What class interval would you suggest?

c. What would you recommend as the lower limit of the first class? d. Organize the data into a frequency distribution. e. Comment on the shape of the frequency distribution. 26. The following data give the weekly amounts spent on groceries for a sample of households in rural Wisconsin.

$271 279 192 116 429

$363 205 181 100 294

$159 279 321 151 570

$ 76 266 309 240 342

$227 199 246 474 279

$337 177 278 297 235

$295 162 50 170 434

$319 232 41 188 123

$250 303 335 320 325

a. How many classes would you recommend? b. What class interval would you suggest?

c. What would you recommend as the lower limit of the first class? d. Organize the data into a frequency distribution. 27. The following histogram shows the scores on the first statistics exam.

25 i:!' 20 53::::J 15

g 10

tl:

5 60 70 80 90 100

Score

a. How many students took the exam? b. What is the class interval? c. What is the class midpoint for the first class? d. How many students earned a score of less than 70? 28. The following chart summarizes the selling price of homes sold last month in the Sarasota, Florida, area. a. What is the chart called? b. HoW many homes were sold during the last month? c. What is the class interval? d. About 75 percent of the houses sold for less than what amount? e. One hundred seventy-five of the homes sold for less than what amount?

Describing Data: Frequency Distributions and Graphic Presentation

1:)'.

§ ::I

1

49

75 1: ~100

200 250! 150

CIJ

5 0 c.. fE

100

25

50 0L-~5~0-==10~0~~15~0--~20~0--~25~0--~30~0--3~50

Selling price ($000)

29. A chain of sport shops catering to beginning skiers, headquartered in Aspen, Colorado, plans to conduct a study of how much a beginning skier spends on his or her initial purchase of equipment and supplies. Based on these figures, they want to explore the possibility of offering combinations, such as a pair of boots and a pair of skis, to induce customers to buy more. A sample of their cash register receipts revealed these initial purchases:

$140 86 139 161 175

$ 82 125 149 135 127

$265 235 132 172 149

$168 212 105 220 126

$ 90 171 162 229 121

$114 149 126 129 118

$172 156 216 87 172

$230 162 195 128 126

$142 118 127 126

a. Arrive at a suggested class interval. Use five classes, and let the lower limit of the first class be $80. b. What would be a better class interval? c. Organize the data into a frequency distribution using a lower limit of $80. d. Interpret your findings. 30. The numbers of shareholders for a selected group of large companies (in thousands) are:

Company Southwest Airlines General Public Utilities Occidental Petroleum Middle South Utilities DaimlerChrysler Standard Oil of California Bethlehem Steel Long Island Lighting RCA Greyhound Corporation Pacific Gas &Electric Niagara Mohawk Power E. L du Pont de Nemours Morris Knudsen Corporation Union Carbide BankAmerica Northeast Utilities

Number of Shareholders (thousands)

144 177 266 133 209 264 160 143 246 151 239 204 204 195 176 175 200

Company Standard Oil (Indiana) Home Depot Detroit Edison Eastman Kodak Dow Chemical Pennsylvania Power American Electric Power Ohio Edison Transamerica Corporation Columbia Gas System International Telephone & Telegraph Union Electric Virginia Electric and Power Public Service Electric &Gas Consumers Power

Number of Shareholders (thousands)

173 195 220 251 137 150 262 158 162 165 223 158 162 225 161

The numbers of shareholders are to be organized into a frequency distribution and several graphs drawn to portray the distribution.

50

Chapter 2

a. b. c. d.

Using seven classes and a lower limit of 130, construct a frequency distribution. Portray the distribution as a frequency polygon. Portray the distribution in a cumulative frequency polygon. According to the polygon, three out of four (75 percent) of the companies have how many shareholders or less? e. Write a brief analysis of the number of shareholders based on the frequency distribution and graphs. 31. A recent survey showed that the typical American car owner spends $2,950 per year on operating expenses. Below is a breakdown of the various expenditure items. Draw an appropriate chart to portray the data and summarize your findings in a brief report.

Expenditure Item

Amount

Fuel Interest on car loan Repairs Insurance and license Depreciation

$ 603 279 930 646 492

Total

$2,950

32. The Midland National Bank selected a sample of 40 student checking accounts. Below are their end-of-the-month balances.

$404 87 703 968

$ 74 234 125 712

$234 68 350 503

$149 489 440 489

$279 57 37 327

$215 185 252 608

$123 141 27 358

$ 55

$ 43

758 521 425

72 302 303

$321 863 127 203

a. Tally the data into a frequency distribution using $100 as a class interval and $0 as the starting point. b. Draw a cumulative frequency polygon. c. The bank considers any student with an ending balance of $400 or more a "preferred customer." Estimate the percentage of preferred customers. d. The bank is also considering a service charge to the lowest 10 percent of the ending balances. What would you recommend as the cutoff point between those who have to pay a service charge and those who do not? 33. Residents of the state of South Carolina earned a total of $70.6 billion in 2003 in adjusted gross income. Seventy-three percent of the total was in wages and salaries; 11 percent in dividends, interest, and capital gains; 8 percent in IRAs and taxable pensions; 3 percent in business income pensions; 2 percent in social security, and the remaining 3 percent was from other sources. Develop a pie chart depicting the breakdown of adjusted gross income. Write a paragraph summarizing the information. 34. A recent study of home technologies reported the number of hours of personal computer usage per week for a sample of 60 persons. Excluded from the study were people who worked out of their home and used the computer as a part of their work.

9.3 6.3 4.3 5.4 2.0 4.5

5.3 2.1 9.7 4.8 6.7 9.3

6.3 2.7 7.7 2.1 1.1 7.9

8.8 0.4 5.2 10.1 6.7 4.6

6.5 3.7 1.7 1.3 2.2 4.3

0.6 3.3 8.5 5.6 2.6 4.5

5.2 1.1 4.2 2.4 9.8 9.2

6.6 2.7 5.5 2.4 6.4 8.5

9.3 6.7 5.1 4.7 4.9 6.0

4.3 6.5 5.6 1.7 5.2 8.1

51

Describing Data: Frequency Distributions and Graphic Presentation

a. Organize the data into a frequency distribution. How many classes would you suggest? What value would you suggest for a class interval? b. Draw a histogram. Interpret your result. 35. Merrill Lynch recently completed a study regarding the size of on-line investment portfolios (stocks, bonds, mutual funds, and certificates of deposit) for a sample of clients in the 40to 50-year-old age group. Listed below is the value of all the investments in $000 for the 70 participants in the study.

$669.9 301.9 136.4 380.7 228.6 39.5 31.3 221.1 295.7

$ 7.5 $ 77.2 235.4 716.4 616.9 440.6 3.3 363.2 308.7 126.7 124.3 118.1 301.2 35.7 43.4 212.3 437.0 87.8

$ 7.5 145.3 408.2 51.9 430.3 23.9 154.9 243.3 302.1

$125.7 26.6 34.4 52.2 82.0 352.8 174.3 315.4 268.1

$516.9 187.2 296.1 107.5 227.0 156.7 100.6 5.9 899.5

$219.9 315.5 185.4 82.9 321.1 276.3 236.7 1002.2

$645.2 89.2 526.3 63.0 403.4 23.5 171.9 171.7

a. Organize the data into a frequency distribution. How many classes would you suggest? What value would you suggest for a class interval?

b. Draw a histogram. Interpret your result. 36. In May 2004, 18.5 percent of the Prime Time TV viewing audience watched shows on ABC, 25.9 percent on CBS, 18.5 percent on Fox, 18.5 percent on NBC, 7.4 percent on Warner Brothers, and 7.4 percent on UPN. You can find the latest information on TV viewing from the following website: http://tv.zap2it.com/news/ratings/. Develop a pie chart or a bar chart to depict this information. Write a paragraph summarizing the information. 37. The American Heart Association reported the following percentage breakdown of expenses. Draw a pie chart depicting the information. Interpret.

Category

Percent

Research Public Health Education Community Service Fund Raising Professional and Educational Training Management and General

32.3 23.5 12.6 12.1 10.9 8.6

38. In their 2003 annual report Schering-Plough Corporation reported their income, in millions of dollars, for the years 1998 to 2003 as follows. Develop a line chart depicting the results and comment on your findings. Note that there was a $46 million loss in 2003.

Income Year

($ million)

1998 1999 2000 2001 2002 2003

1,756 2,110 2,423 1,943 1,974 (46)

52

Chapter 2

39. Annual revenues, by type of tax, for the state of Georgia are as follows. Develop an appropriate chart or graph and write a brief report summarizing the information.

Type of Tax

Amount (000)

Sales Income (Individual) License Corporate Property Death and Gift

$2,812,473 2,732,045 185,198 525,015 22,647 37,326

Total

$6,314,704

40. Annual imports from selected Canadian trading partners are listed below for the year 2003. Develop an appropriate chart or graph and write a brief report summarizing the information.

Annual Imports

Partner

(million)

Japan United Kingdom South Korea China Australia

$9,550 4,556 2,441 1,182 618

41. Farming has changed from the early 1900s. In the early 20th century, machinery gradually replaced animal power. For example, in 1910 U.S. farms used 24.2 million horses and mules and only about 1,000 tractors. By 1960, 4.6 million tractors were used and only 3.2 million horses and mules. In 1920 there were over 6 million farms in the United States. Today there are less than 2 million. Listed below is the number of farms, in thousands, for each of the 50 states. Write a paragraph summarizing your findings.

47 4 7 14 35

1 21 52 38 86

8 80 87 59 185

46 63 39 33 13

76 100 106 76 7

26 65 25 71 43

4 91 55 37 36

3 29 2 51 20

39 7 3 1 79

45 15 8 24 9

42. One of the most popular candies in the United States is M&M's, which are produced by the Mars Company. In the beginning M&M's were all brown; more recently they were produced in red, green, blue, orange, brown, and yellow. You can read about the history .of the product, find ideas for baking, purchase the candies in the colors of your school or favorite team, and learn the percent of each color in the standard bags at http://global.mms.com/us/about/products/milkchocolate.jsp. Recently the purchase of a 14-ounce bag of M&M's Plain had 444 candies with the following breakdown by color: 130 brown, 98 yellow, 96 red, 35 orange, 52 blue, and 33 green. Develop a chart depicting this information and write a paragraph summarizing the results. 43. The graph below is a combination of a line chart and a pie chart. The line chart depicts the total vehicle sales from 1993 to 2003. The pie charts for each year show the percentage light-duty truck sales are of total vehicle sales. Write a brief report summarizing the results.' . Be sure to include whether there has been a change in truck sales over the period. Also, has the percent that light-duty trucks are of the total vehicle sales changed over time? How?

53

Describing Data: Frequency Distributions and Graphic Presentation

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Year 44. A pie chart shows the market shares of cola products. The "slice" for Pepsi-Cola has a central angle of 90 degrees. What is their market share? 45. The following graph shows the total wages paid by software and aircraft companies in the state of Washington from 1994 until 2002. Write a brief report summarizing this information. Total wages paid by software companies (quarterly) Total wages paid by aerospace companies (quarterly)

_

$3.5 In billions

3.0 2.51-------------llt:-{J---\---/A--___j 2.01-------------6-Y----\---6-\-___j 1.5~----------------~~--~------~~~--:=~

1.0 I-""'........0.5

........~-"___JF_"~'----------___j

r-::==~,.....;L--------------j

OL-----------------------------------------~

'94

'95

'96

'97

'98

'99

'~O

'01

'02

Source: Washington State Office of the Forecast Council

G

exerCIses . com . : 46. Monthly and year-to-date truck sales are available at the website: http://www.pickuptruck. com. Go to this site and search under News to obtain the most recent information. Make a pie chart or a bar chart showing the most recent information. What is the bestselling truck? What are the four or five best selling trucks? What is their market share? You may wish to group some of the trucks into a category called "Other" to get a better picture of market share. Comment on your findings.

Dataset Exercises 47. Refer to the Real Estate data, which reports information on homes sold in the Denver, Colorado, area during the last year. a. Select an appropriate class interval and organize the selling prices into a frequency distribution. 1. Around what values do the data tend to cluster? .' 2. What is the largest selling price? What is the smallest selling price? b. Draw a cumulative frequency distribution based on the frequency distribution developed in part (a) . . 1. How many homes sold for less than $200,000? 2. Estimate the percent of the homes that sold for more than $220,000. 3. What percent of the homes sold for less than $125,000? c. Write a report summarizing the selling prices of the homes.

54

Chapter 2

48. Refer to the Baseball 2003 data, which reports information on the 30 Major League Baseball teams for the 2003 season. a. Organize the information on the team salaries into a frequency distribution. Select an appropriate class interval. 1. What is a typical team salary? What is the range of salaries? 2. Comment on the shape of the distribution. Does it appear that any of the team salaries are out of line with the others? b. Draw a cumulative frequency distribution based on the frequency distribution developed in part (a). 1. Forty percent of the teams are paying less than what amount in total team salary? 2. About how many teams have total salaries of less than $80,000,000? 3. Below what amount do the lowest five teams pay in total salary? c. Organize the information on the size of the various stadiums into a frequency distribution. 1. What is a typical stadium size? Where do the stadium sizes tend to cluster? 2. Comment on the shape of the distribution. Does it appear that any of the stadium sizes are out of line with the others? d. Organize the information on the year in which the 30 major league stadiums were built into a frequency distribution. (You could also create a new variable called AGE by subtracting the year in which the stadium was built from the current year.) 1. What is the year in which the typical stadium was built? Where do these years tend to cluster? 2. Comment on the shape of the distribution. Does it appear that any of the stadium ages are out of line with the others? If so, which ones? 49. Refer to the Wage data, which reports information on annual wages for a sample of 100 workers. Also included are variables relating to industry, years of education, and gender for each worker. Draw a bar chart of the variable occupation. Write a brief report summarizing your findings. 50. Refer to the CIA data, which reports demographic and economic information on 46 countries. Develop a frequency distribution for the variable GNP per capita. Summarize your findings. What is the shape of the distribution?

Software Commands

.~~~.~----~------------------------------------------------

1.

2.

The MegaStat commands for the frequency distribution on page 30 are: a. Open Excel and from the CD provided, select Go to the Data Sets, and select the Excel format; go to Chapter 2, and select Table 2-1. Click on MegaStat, Frequency Distribution, and select Quantitative. b. In the dialog box, input the range from A1:A81, select Equal width intervals, use 3,000 as the interval width, 15,000 as the lower boundary of the first interval, select Histogram, and then click OK. The Excel commands for the histogram on page 34 are: a. In cell A 1 indicate that the column of data is the selling price and in 81 that it is the frequency. In columns A2 to A8 insert the midpoints of the seiling prices in $000. In 82 to 88 record the class frequencies. b. With your mouse arrow on A 1, click and drag to highlight the cells A 1:88. c. From the Tool bar select Chart Wizard, under Chart type select Column, under Chart subtype select the vertical bars in the upper left corner, and finally click on Next in the lower right corner. d. At the top select the Series tab. Under the Series list box, Price is highlighted. Select Remove. (We do not want Price to be a part of the values.) At

the bottom, in the Category (X) axis labels text box, click the icon at the far right. Put your cursor on cell A2, click and drag to cell A8. There will be a running box around cells A2 to A8. Touch the Enter key. This identifies the column of Prices as the X-axis labels. Click on Next. e. At the top of the dialog box click on Titles. Click on the Chart title box and key in Selling Price of 80 Vehicles Sold at Whitner Autoplex. Tab to the Category (X) axis box and key in the label Selling Price in ($000). Tab to the Category M axis box and key in Frequency. At the top select Legend and remove the check from the Show legend box. Click Finish. f. To make the chart larger, click on the middle handle of the top line and drag the line to row 1.

55

Describing Data: Frequency Distributions and Graphic Presentation

3.

Make sure the handles show on the chart box. With your right mouse button, click on one of the columns. Select Format Data Series. At the top select the Options tab. In the Gap width text box, click the. down arrow until the gap width reads 0, and click OK. The Excel commands for the pie chart on page 45 are: a. Set cell A 1 as the active cell and type the words Use of Sales. In cells A2 through A5 type Prizes, Education, Bonuses, and Expense. b. Set B1 as the active cell and type Amount ($ Millions) and in cells B2 through B5 enter the data. c. From the Tool Bar select Chart Wizard. Select Pie as the type of chart, select the chart type in the upper left corner, and then click on Next. d. For the Data Range type A 1:B5, indicate that the data are in Columns, and then click on Next. e. Click on the chart title area and type Ohio Lottery Expenses 2002. Then click Finish.

Data Range

L:s..~if.;;.s.] 1 Selling Price of 80 Vehicles Sold at the Vhitner Autoplez Lot

25

,.----~--:--.,-_:_~--:--_,.__,

eo 20

5 15 ~ 10

.::

5 16.5

13.5

22,5

25,5

28,5

31.5

34.5

Sdliag Price (SOOO)

Category (X) axis labels:

Cancel

Name:

I=Sheetll$B$1

'l.alues:

I=Sheetll$B$2:$B$B

I=Sheetll$A$2:$A$B


Next>

E!nlsh

. Chapter 2

56

Chapter 2 Answers to Self-Review 2-1

a. The raw data or ungrouped data. b.

Number of Salespeople

Commission

2 5 3 1

$1 ,400 up to $1 ,500 1,500 up to 1,600 1,600 up to 1,700 1,700 up to 1,800

2-3

2-4

b.

Hourly Wages

-----------, Cumulative Number

--------.-------1

a

Less than $8

11

Total

2-2

2-5

c. The smallest annual sales volume of imports by a supplier is about $2 million, the largest about $17 million. The highest frequency is between $8 million and $11 million. a. A frequency distribution.

Less than $1 0 Less than $12 Less than $14 Less than $16

c. Class frequencies. d. The largest concentration of commissions is $1,500 up to $1 ,600. The smallest commission is about $1,400 and the largest is about $1,800. a. 2 6 = 64 < 73 < 128 = 27. So 7 classes are recommended. b. The interval width should be at least (488 320)/7 = 24. Class intervals of 25 or 30 feet are both reasonable. c. If we use a class interval of 25 feet and begin with a lower limit of 300 feet, eight classes would be necessary. A class interval of 30 feet beginning with 300 feet is also reasonable. This alternative requires only seven classes. a. 23 b. 28.75%, found by (23/80) x 100 c. 7.5%, found by (6/80) x 100

3 10 14 15

16 , - - - - - - - - - - - - - , en

.. ~ 12 c::

Q)

::l

cr

~

Q)

8

I----...-~

:§ :5 E ::l

4 1------,(

c..:l

8

a.

10

12

14

20

c. About seven employees earn $11.00 or less. About half the employees earn $11.25 or more . About four employees earn $10.25 or less.

o~ 15 .... Q) Q).-

~ §: 10

::l::l zen

2-6 5

_4% Supplies

0

2

5

8 11 Imports ($ millions)

14

17

b. 40

~

30 '0 1:: 20 Q)

r::

Q)

c..

10 0

16

Hourly wages (in dollars)

40% 2

5

8

11

14

17

Imports ($ millions) The plots are: (3.5, 12), (6.5, 26), (9.5, 40), (12.5, 20), and (15.5, 2).

D scribing Data: Numerical Measures GOALS When you have completed this chapter you will be able to: Calculate the arithmetic mean, weighted mean, median, mode, and geometric mean.

I

Explain the characteristics, uses, advantages, and disadvantages of each measure of location.

2

Identify the position of the mean, median, and mode for both symmetric and skewed distributions.

3

The weights (in pounds) of a sample of five boxes being shipped to Texas using UPS are: 12, 6, 7, 3 and 10. Compute the standard deviation. (See Goal 4 and Exercise 66.)

Compute and interpret the range,. mean deviation, .variance, and standard deviation.

4

Understand the characteristics, uses, advantages, and disadvantages of each measure of dispersion.

5

Understand Chebyshev's theorem and the Empirical Rule as they relate to a set of observations.

6

58

Chapter 3

Introduction

.~~lItisti(;sinAction .

. Did you ever meet the'.'average" American? Well, his name

I,••. ,~o~i~:j\~;eit!;th~ measurerIlent), he is

I, } 1 years old (that is !theratiolevel),he is 69.5 inches tall . (again the ratio level , of measurement), I \veighs 172 pounds; I wears a size 9):1 shoe, !has a 34-inch waist, [.andwears a sizeAO: •. suit. In addition, the average man eats.4 pounds of potato chips, watche~Z,567 hours of TV, eats. 26 pOllridsofbananas i each year, and also, ! he sleeps 7;7 hours fpernight.·· '.' ,Theaverage' American woman is 5' 4/1 'fall and weighs. . 140 pounds, while theayerage Ameri, can model is 5'11/1 taltaiId weighs 117 pounds. Most.fash~ I• .ion models ~re thinrier'than 98% of

'.' I

I

Ameri~~n w~l11en.

! Four 6ut offive

i. American women say

.thwith .•....e.Y'r.the ...~.d.. is . .~.a.t.isfied way they. I'.•.··..look. On any given

day, almost half of . the womeniri the United .States are on. acliet. Idoliied iiI. > the 1950s, Marilyn .ty1oIlIoewould be, cbnsideied over, weight by today's standards. She fluctuated between a size 14 and 18 dress, and was a healthy and attractive woman.

I

---

~

-

~

--

Chapter 2 began our study of descriptive statistics. To transform a mass of raw data into a meaningful form, we organized it into a frequency distribution and portrayed it graphically in a histogram or a frequency polygon. We also looked at other graphical techniques such as line charts and pie charts. This chapter is concerned with two numerical ways of describing data, namely, measures of location and measures of dispersion. Measures of location are often referred to as averages. The purpose of a measure of location is to pinpoint the center of a set of values. YOu are familiar with the concept of an average. An average is a measure of location that shows the central value of the data. Averages appear daily on TV, in the newspaper, and in news magazines. Here are some examples:

• • • •

•

• The average U.S. home changes owner. ship every 11.8 years. • . The average price of a gallon of gasoline last week in South Carolina was $1.94, according to a study by the American Automobile Association. The average cost to drive a private automobile is 55.8 cents per mile in Los Angeles, 49.8 cents per mile in Boston, 49.0 cents per mile in Philadelphia. An American receives an average of 568 pieces of mail per year. The average starting salary for a business school graduate last year was $36,357. For a graduate with a Liberal Arts major it was $31,599. There are 26.4 million golfers over the age of 12 in the United States. Approximately 6.1 million are avid golfers; that is, they play an average of 25 rounds a year. Some additional information on golfers and golfing: the median cost of a round of golf on an 18-hole course at a municipal course in the United States is $30. Today's typical golfer is male, 40 years old, has a household income of $68,209, and plays 21.3 rounds per year. In Chicago the mean high temperature is 84 degrees in July and 31 degrees in January. The mean amount of precipitation is 3.80 inches in July and 1.90 inches in January.

If we consider only the measures of location in a set of data, or if we compare several sets of data using central values, we may draw an erroneous conclusion. In addition to the measures of location, we should consider the dispersion-often called the variation or the spread-in the data. As an illustration, suppose the average annual income of executives for Internet-related companies is $80,000, and the average income for executives in pharmaceutical firms is also $80,000. If we looked only at the average incomes, we might wrongly conclude that the two salary distributions are identical or nearly identical. A look at the salary ranges indicates that this conclusion is not correct. The salaries for the executives in the Internet firms range from $70,000 to $90,000, but salaries for the marketing executives in pharmaceuticals range from $40,000 to $120,000. Thus, we conclude that although the average salaries are the same for the two industries, there is much more spread or dispersion in salaries for the pharmaceutical executives. To evaluate the dispersion we will consider the range, the mean deviation, the variance, and the standard deviation. We begin by discussing measures of location. There is not just one measure of location; in fact, there are many. We will consider five: the arithmetic mean, the weighted mean, the median, the mode, and the geometric mean. The arithmetic mean is the most widely used and widely reported measure of location. We study the mean as both a population parameter and a sample statistic.

59

Describing Data: Numerical Measures

The Population Mean Many studies involve all the values in a population. For example, there are 39 exits on

1-75 through the ptate of Kentucky. The mean distance between these exits is 4.76 miles. This is an example of a population parameter because we have studied the distance between al/ the exits. There are 12 sales associates employed at the Reynolds Road outlet of Carpets by Otto. The mean amount of commission they earned last month was $1,345. This is a population value because we considered the commission of al/ the sales associates. Other examples of a population mean would be: the mean closing price for Johnson and Johnson stock for the last 5 days is $55.25; the mean annual rate of return for the last 10 years for Berger Funds is 5.21 percent; and the mean number of hours of overtime worked last week by the six welders in the welding department of Butts Welding, Inc., is 6.45 hours. For raw data, that is, data that has not been grouped in a frequency distribution, the population mean is the sum of all the values in the population divided by the number of values in the population. To find the population mean, we use the following formula. . Sum of all the values in the population Number of values in the population Population mean = Instead of writing out in words the full directions for computing the population mean (or any other measure), it is more convenient to use the shorthand symbols of mathematics. The mean of a population using mathematical symbols is:

[3-11

1 POPULATION MEAN

1

where: /-L represents the population mean. It is the Greek lowercase letter "mu."

N is the number of values in the population. X represents any particular value. is the Greek capital letter "sigma" and indicates the operation of adding. is the sum of the X values in the population.

~ ~X

Any measurable characteristic of a population is called a parameter. The mean of a population is a parameter.

PARAMETER A characteristic of a population.

There are 12 automobile manufacturing companies in the United States. Listed below is the number of patents granted by the United States government to each company in a recent year.

Company

General Motors Nissan DaimlerChrysler Toyota Honda Ford

Number of Patents Granted

Company

Number of Patents Granted

511 385 275 257 249 234

Mazda Chrysler Porsche Mitsubishi Volvo BMW

210 97 50 36 23 13

60

Chapter 3

Is this information a sample or a population? What is the arithmetic mean number of patents granted?

SOLUTION

This is a population because we are considering all the automobile manufacturing companies obtaining patents. We add the number of patents for each of the 12 companies. The total number of patents for the 12 companies is 2,340. To find the arithmetic mean, we divide this total by 12. So the arithmetic mean is 195, found by 2340/12. From formula (3-1): f.L

= 511 + 385 + ... + 13 = 2340 = 195

12 12 How do we interpret the value of 195? The typical number of patents received by an automobile manufacturing company is 195. Because we considered all the companies receiving patents, this value is a population parameter.

The Sam~le Mean As explained in Chapter 1, we often select a sample from the population to find something about a specific characteristic of the population. The quality assurance department, for example, needs to be assured that the ball bearings being produced have an acceptable outside diameter. It would be very expensive and time consuming to check the outside diameter of all the bearings produced. Therefore, a sample of five bearings is selected and the mean outside diameter of the five bearings is calculated to estimate the mean diameter of all the bearings. For raw data, that is, ungrouped data, the mean is the sum of al/ the sampled values divided by the total number of sampled values. To find the mean for a sample: Mean of ungrouped sample data

S I Sum of all the values in the sample amp e mean = Number of values in the sample The mean of a sample and the mean of a population are computed in the same way, but the shorthand notation used is different. The formula for the mean of a sample is:

I

-

~X

X=-

SAMPLE MEAN

n

where: X is the sample mean. It is read "X bar." n is the number of values in the sample. The mean of a sample, or any other measure based on sample data, is called a statistic. If the mean outside diameter of a sample of five ball bearings is 0.625 inches, this is an example of a statistic. STATISTIC A characteristic of a sample.

EXAMPLE

Sun Com is studying the number of minutes used monthly by customers in their "Friends and Family" cell phone plan. A random sample of 12 clients enrolled in this plan showed the following number of minutes used last month. 90 91

77 110

94 92

89 100

119 113

112 83

61

Describing Data: Numerical Measures

What is the arithmetic mean number of minutes used? Using formula (3-2), the sample mean is: Sample mean

=

Sum of all the values in the sample Number of values in the sample

kX = 90 + 77 + ... + 83 = 1170 = 97 5 12

n

12'

The arithmetic mean number of minutes used last month by the sample of Friends and Family cell phone users is 97.5 minutes. To put it another way, the typical customer enrolled in the Friends and Family plan used 97.5 minutes of air time last month.

Properties of the Arithmetic Mean The arithmetic mean is a widely used measure of location. It has several important properties: 1.

2. 3. 4.

Every set of interval- or ratio-level data has a mean. Recall from Chapter 1 that ratio-level data include such data as ages, incomes, and weights, with the distance between numbers being constant. All the values are included in computing the mean. A set of data has only one mean. The mean is unique. Later in the chapter we will discover an average that might appear twice, or more than twice, in a set of data. The sum of the deviations of each value from the mean will always be zero. Expressed symbolically:

k(X -

X)

0

As an example, the mean of 3, 8, and 4 is 5. Then:

k(X -

X) = (3 - 5) + (8 = -2 + 3

5)

+ (4

- 5)

=0 Mean as a balance point

Thus, we can consider the mean as a balance point for a set of data. To illustrate, we have a long board with the numbers 1, 2, 3, ... , n evenly' spaced on it. Suppose three bars of equal weight were placed on the board at numbers 3, 4, and 8, and the balance point was set at 5, the mean of the three numbers. We would find that the board is balanced perfectly! The deviations below the mean (-3) are equal to the deviations above the mean (+3). Shown schematically:

62

Chapter 3

Mean unduly affected by unusually large or small values

The mean does have a weakness. Recall that the mean uses the value of every item in a sample, or population, in its computation. If one or two of these values are either extremely large or extremely small compared to the majority of data, the mean might not be an <:l.ppropriate average to represent the data. For example, suppose the annual incomes of a small group of stockbrokers at Merrill Lynch are $62,900, $61,600, $62,500, $60,800, and $1,200,000. The mean income is $289,560. Obviously, it is not representative of this group, because all but one broker has an income in the $60,000 to $63,000 range. One income ($1.2 million) is unduly affecting the mean.

Self-Review 3-1

1.

2.

The annual incomes of a sample of middle-management employees at Westinghoyse are: $62,900, $69,100, $58,300, and $76,800. (a) Give the formula for the sample mean. (b) Find the sample mean. (c) Is the mean you computed in (b) a statistic or a parameter? Why? (d) What is your best estimate of the population mean? All the students in advanced Computer Science 411 are a population. Their course grades are 92, 96, 61, 86, 79, and 84. (a) Give the formula for the population mean. (b) Compute the mean course grade. (c) Is the mean you computed in (b) a statistic or a parameter? Why?

Exercises The answers to the odd-numbered exercises are at the end of the book.

1. Compute the mean of the following population values: 6, 3, 5, 7, 6. 2. Compute the mean of the following population values: 7, 5, 7, 3, 7, 4. 3. a. Compute the mean of the following sample values: 5, 9, 4, 10. b. Show that 2:(X - X) = o. 4. a. Compute the mean of the following sample values: 1.3, 7.0, 3.6, 4.1, 5.0. b. Show that 2:(X - X) = O. 5. Compute the mean of the following sample values: 16.25, 12.91, 14.58. 6. Compute the mean hourly wage paid to carpenters who earned the following wages: $15.40, $20.10, $18.75, $22.76, $30.67, $18.00. For Exercises 7-10, (a) compute the arithmetic mean and (b) indicate whether it is a statistic or a parameter.

7. There are 10 salespeople employed by Moody Insurance Agency in Venice, Florida. The numbers of new life insurance policies sold last month by the respective salespeople were: 15,23,4,19,18,10,10,8,28,19. 8. The accounting department at a mail-order company counted the following numbers of incoming calls per day to the company's toll-free number during the first 7 days in May 2003: 14,24,19,31,36,26,17. 9. The Cambridge Power and Light Company selected a random sample of 20 residential customers. Following are the amounts, to the nearest dollar, the customers were charged for electrical service last month: 54 67

48 68

58 39

50 35

25 56

47 66

75 33

46 62

60 65

70 67

10. The Human Relations Director at Ford began a study of the overtime hours in the Inspec- .. tion Department. A sample of 15 workers showed they worked the following number of overtime hours last month. 13 6

13 7

12 12

15 10

7

9

15 13

5 12

12

63

Describing Data: Numerical Measures

The Weighted Mean The weighted mean is a special case of the arithmetic mean. It occurs when there are several observations of the same value. To explain, suppose the nearby Wendy's Restaurant sold medium, large, and Biggie-sized soft drinks for $.90, $1.25, and $1.50, respectively. Of the last 10 drinks sold, 3 were medium, 4 were large, and 3 were Biggie-sized. To find the mean price of the last 10 drinks sold, we could use formula (3-2).

X=

$.90

+ $.90 + $.90 + $1.25 + $1.25 + $1.25 + $1.25 + $1.50 + $1.50 + $1.50 10

x

20 $1;0

=

$1.22

The mean selling price of the last 10 drinks is $1.22. An easier way to find the mean selling price is to determine the weighted mean. That is, we multiply each observation by the number of times it happens. We will refer to the weighted mean as Xw. This is read "X bar sub w."

Xw =

3($0.90)

+ 4($1.25) + 3($1.50) = $12.20 = $1.22 10

10

In this case the weights are frequency counts. However, any measure of importance could be used as a weight. In general the weighted mean of a set of numbers designated X1, X2 , X3 , ••• ,Xn with the corresponding weights w1 , W2, W3, ••• , wn is computed by:

WEIGHTED MEAN

[3-3]

This may be shortened to:

The Carter Construction Company pays its hourly employees $16.50, $17.50, or $18.50 per hour. There are 26 hourly employees, 14 are paid at the $16.50 rate, 10 at the $17.50 rate, and 2 at the $18.50 rate. What is the mean hourly rate paid the 26 employees? . To find the mean hourly rate, we weight or multiply each of the hourly rates by the number of employees earning that rate. From formula (3-3), the mean hourly rate is

Xw =

14($16.50) + 10($17.50) + 2($18.50) = $443.00 = $17.038 14 + 10 + 2 26 The weighted mean hourly wage is rounded to $17.04.

Self-Review 3-2

Springers sold 95 Antonelli men's suits for the regular price of $400. For the spring sale the suits were reduced to $200 and 126 were sold. At the final clearance, the price was reduced to $100 and the remaining 79 suits were sold. (a) (b)

What was the weighted mean price of an Antonelli suit? Springers paid $200 a suit for the 300 suits. Comment on the store's profit per suit if a salesperson receives a $25 commission for each one sold.

64

Chapter 3

Exercises 11. In June an investor purchased 300 shares of Oracle (an information technology company) stock at $20 per share. In August she purchased an additional 400 shares at $25 per share. In November she purchased an additional 400 shares, but the stock declined to $23 per share. What is the weighted mean price per share? 12. The Bookstall, Inc., is a specialty bookstore concentrating on used books sold via the Internet. Paperbacks are $1.00 each, and hardcover books are $3.50. Of the 50 books sold last Tuesday morning, 40 were paperback and the rest were hardcover. What was the weighted mean price of a book? 13. Yesterday the Hess Mart at the junction of state highways 707 and 544 in Socastee, South Carolina sold 3,265 gallons of gasoline to motorists. They offered unleaded regular at $1.749 per gallon, unleaded plus at $1.849 per gallon, and unleaded supreme at $1.949 per gallon. Of the total gallons sold, 80.2 percent was unleaded regular, 15.2 percent unleaded plus, and the remaining 4.6 percent was unleaded supreme. Find the weighted mean selling price. 14. Andrews and Associates specialize in corporate law. They charge $100 an hour for researching a case, $75 an hour for consultations, and $200 an hour for writing a brief. Last week one of the associates spent 10 hours consulting with her client, 10 hours researching the case, and 20 hours writing the brief. What was the weighted mean hourly charge for her legal services?

The Median We have stressed that for data containing one or two very large or very small values, the arithmetic mean may not be representative. The center for such data can be better described by a measure of location called the median. To illustrate the need for a measure of location other than the arithmetic mean, suppose you are seeking to buy a condominium in Palm Aire. Your real estate agent says that the average price of the units currently available is $110,000. Would you still want to look? If you had budgeted your maximum purchase price at $75,000, you might think they are out of your price range. However, checking the individual prices of the units might change your mind. They are $60,000, $65,000, $70,000, $80,000, and a superdeluxe penthouse costs $275,000. The arithmetic mean price is $110,000, as the real estate agent reported, but one price ($275,000) is pulling the arithmetic mean upward, causing it to be an unrepresentative average. It does seem that a price around $70,000 is a more typical or representative average, and it is. In cases such as this, the median provides a more valid measure of location.

MEDIAN The midpoint of the values after they have been ordered from the smallest to the largest, or the largest to the smallest. The data must be at least ordinal level of measurement. The median price of the units available is $70,000. To determine this, we ordered the prices from low ($60,000) to high ($275,000) and selected the middle value ($70,000). Prices Ordered from Low to High $ 60,000 65,000 70,000 80,000 275,000

Median unaffected by extreme values

Prices Ordered from High to Low

f-

Median -7

$275,000 80,000 70,000 65,000 60,000

Note that there is the same number of prices below the median of $70,000 as above it. There are as many values below the median as above. The median is, therefore, unaffected by extremely low or high prices. Had the highest price been $90,000,

65

Describing Data: Numerical Measures

or $300,000, or even $1 million, the median price would still be $70,000. Likewise, had the lowest price been $20,000 or $50,000, the median price would still be $70,000. In the previous illustration there is an odd number of observations (five). How is the median determined for an even number of observations? As before, the observations are ordered. Then by convention to obtain a unique value we calculate the mean of the two middle observations. So for an even number of observations, the median may not be one of the given values.

EXAMPLE

The five-year annualized total returns of six mutual funds with emphasis on aggressive growth are listed below. What is the median annualized return?

SOLUTION Name of Fund PBHG Growth Dean Witter Developing Growth AIM Aggressive Growth Twentieth Century Giftrust Robertson Stevens Emerging Growth Seligman Frontier A

Annualized Total Return 28.5% 17.2 25.4 28.6 22.6 21.0

Note that the number of returns is even (6). As before, the returns are first ordered from low to high. Then the two middle returns are identified. The arithmetic mean of the two middle observations gives us the median return. Arranging from low to high: 17.2% 21.0

~~:: ~ 48.0/2 =

24.0 percent, the median return

28.5 28.6

Notice that the median is not one of the values. Also, half of the returns are below the . median and half are above it.

The major properties of the median are: 1. 2. Median can be determined for all levels of data except nominal

3.

The median is unique; that is, like the mean, there is only one median for a set of data. It is not affected by extremely large or small values and is therefore a valuable measure of location when such values do occur. It can be computed for ratio-level, interval-level, and ordinal-level data. Recall from Chapter 1 that ordinal-level data can be ranked from low to high-such as the responses "excellent," "very good," "good,". "fair," and "poor" to a question on a marketing survey. To use a simple illustration, suppose five people rated a new fudge bar. One person thought it was excellent, one rated it very good, one called it good, one rated it fair, and one considered it poor. The median response is "good." Half of the responses are above "good"; the other half are below it.

The Mode The mode is another measure of location.

66

Chapter 3

MODE The value of the observation that appears most frequently. The mode is especially useful in describing nominal and ordinal levels of measurement. As an example of its use for nominal-level data, a company has developed five bath oils. Chart 3-1 shows the results of a marketing survey designed to find which bath oil consumers prefer. The largest number of respondents favored Lamoure, as evidenced by the highest bar. Thus, Lamoure is the mode.

400 rJ)

Cl)

en <::

300

0

c.. rJ) ~

'0

200

....

Cl)

.c E 100 :::I

Z

0

Amor

Lamoure

t

Mode

Soothing

Smell Nice

Far Out

Bath oil

CHART 3-1 Number of Respondents Favoring Various Bath Oils

salaries of quality-control managers in selected states are shown below. is the modal annual salary?

Salary $35,000 49,100 60,000 60,000 40,000

S;Olll.,IJ'Ii'llllNI

Disadvantages of the mode

State Illinois Louisiana Maryland Massachusetts New Jersey

Salary $58,000 60,000 60,000 40,000 65,000

State Ohio Tennessee Texas West Virginia Wyoming

Salary $50,000 60,000 71,400 60,000 55,000

A perusal of the salaries reveals that the annual salary of $60,000 appears more often (six times) than any other salary. The mode is, therefore, $60,000.

In summary, we can determine the mode for all levels of data-nominal, ordinal, interval, and ratio. The mode also has the advantage of not being affected by extremely high or low values. The mode does have disadvantages, however, that cause it to be used less frequently than the mean or median. For many sets of data, there is no mode because no value appears more than once. For example, there is no mode for this set of price data: $19, $21, $23, $20, and $18. Since every value is different, however, it could be argued that every value is the mode. Conversely, for some data sets there is more than one mode. Suppose the ages of the individuals in a stock investment club are 22, 26, 27, 27, 31, 35, and 35. Both the ages 27 and 35 are modes. Thus, this grouping of ages is referred to as bimodal (having two modes). One would question the use of two modes to represent the location of this set of age data.

67

Describing Data: Numerical Measures

Self-Review 3-3

1.

2.

A sample of single persons in Towson, Texas, receiving Social Security payments revealed these monthly benefits: $426, $299, $290, $687, $480, $439, and $565. (a) What is the median monthly benefit? (b) How many observations are below the median? Above it? The number of plant closings in the steel industry for selected months are 6, 0, 10, 14, 8, and O. (a) What is the median number of closings? (b) How many observations are below the median? Above it? (c) What is the modal number of work closings?

Exercises 15. What would you report as the modal value for a set of observations if there were a total of:

a. 10 observations and no two values were the same? b. 6 observations and they were all the same? c. 6 observations and the values were 1,2,3,3,4, and 4? For Exercises 16-19, (a) determine the median and (b) the mode. 16. The following is the number of oil changes for the last 7 days at the Jiffy Lube located at the

corner of Elm Street and Pennsylvania Ave.

I 41

39

15

54

31

33 I

15

17. The following is the percent change in net income from 2003 to 2004 for a sample of 12 construction companies in Denver.

-10

-6

5

12

7

8

2

5

-1

11

18. The following are the ages of the 10 people in the video arcade at the Southwyck Shopping Mall at 10 A.M. this morning. 8

17

6

11

14

8

17

10

8

19. Listed below are several indicators of long-term economic growth in the United States. The projections are through the year 2008.

Economic Indicator

Percent Change

Inflation Exports Imports Real disposable Income . Consumption

4.5 4.7 2.3 2.9 2.7

Economic Indicator Real GNP Investment (residential) Investment (nonresidential) Productivity (total) Productivity (manufacturing)

Percent Change 2.9 3.6 2.1 1.4 5.2

a. What is the median percent change? b. What is the modal percent change? 20. Yesterday there were 22 arriving flights at the Appleton Outagamie County Regional Airport near Appleton, Wisconsin. The number of minutes each of the flights was earlier or later than the scheduled time is reported below. A negative value indicates the flight arrived before its scheduled time. A positive value reflects the number of minutes the flight arrived after its scheduled time.

68

Chapter 3

-20 24

-15 26

-10 28

-4 29

-1 30

0 36

2 40

3 43

3 44

4 45

13

17

Determine the median value. Interpret this value.

Software Solution We can use a statistical software package to find many measures of location.

EXAMPLE

Table 2-1 on page 25 shows the prices of the 80 vehicles sold last month at Whitner Autoplex in Raytown, Missouri. Determine the mean and the median selling price. The mean and the median selling prices are reported in the following Excel output. (Remember: The instructions to create the output appear in the Software Commands section at the end of the chapter.) There are 80 vehicles in the study, so the calculations with a calculator would be tedious and prone to error.

BIll

;,dit

ca: Iiil 8

Y'ew ,Insert

'!ii [/.lid

~

F2!mat

rools

MIIgaStet Q.ata

Iili!J Ill!,. <1 i A,I.I

W.lndow

lielp

1.,'1 ...

(":.< •

!

f..

m/: ,. . ~~ i~ ~ ...

• 10 • on • r •• ~ E • ~l

,-, .,' . ! i!!lH~ (1)

_6 X :68 ,~g ~

The mean selling price is $23,218 and the median is $22,831. These two values are less than $400 apart. So either value is reasonable. We can also see from the Excel output that there were 80 vehicles sold and their total price is $1,857,453. We will describe the meaning of standard error, standard deviation, and other measures later. What can we conclude? The typical vehicle sold for about $23,000. Ms. Ball of Auto USA might use this value in her revenue projections. For example, if the dealership could increase the number sold in a month from 80 to 90, this would result in an additional estimated $230,000 of revenue, found by 10 x $23,000.

The Relative Positions of the Mean, Median, and Mode Refer to the histogram in Chart 3-2. It is a symmetric distribution, which is also mound-shaped. This distribution has the same shape on either side of the center. If the

69

Describing Data: Numerical Measures

For a symmetric, moundshaped distribution, mean, median, and mode are equal.

polygon were folded in half, the two halves would be identical. For this symmetric distribution, the mode, median, and mean are located at the center and are always equal. They are all equal to 20 years in Chart 3-2. We should point out that there are symmetric distributions that are not mound-shaped.

CHART 3-2 A Symmetric Distribution The number of years corresponding to the highest point of the curve is the mode

(20 years). Because the distribution is symmetrical, the median corresponds to the point where the distribution is cut in half (20 years). The total number of frequencies

A skewed distribution is not symmetrical.

representing many years is offset by the total number representing few years, resulting in an arithmetic mean of 20 years. Logically, any of the three measures would be appropriate to represent the distribution's center. If a distribution is nonsymmetrical, or skewed, the relationship among the three measures changes. In a positively skewed distr,bution, the arithmetic mean is the largest of the three measures. Why? Because the mean is influenced more than the median or mode by a few extremely high values. The median is generally the next largest measure in a positively skewed frequency distribution. The mode is the smallest of the three measures. If the distribution is highly skewed, such as the weekly incomes in Chart 3-3, the mean would not be a good measure to use. The median and mode would be more representative.

y Skewed to the right (positively skewed)

~

I

~WeeklY income

Mode

Median

Mean

$300

$500

$700

CHART 3-3 A Positively Skewed Distribution

70

Chapter 3

Conversely, if a distribution is negatively skewed, the mean is the lowest of the three measures. The mean is, of course, influenced by a few extremely low observations. The median is greater than the arithmetic mean, and the modal value is the largest of the three measures. Again, if the distribution is highly skewed, such as the distribution of tensile strengths shown in Chart 3-4, the mean should not be used to represent the data. Finally, note it is common practice to let the level of the data determine which measure is used to represent the center of the data. To put it another way, the mode is generally used for nominal data, median for ordinal, and mean for ratio-level data.

y Skewed to the left (negatively skewed)

x

·)'1

~st;~g~~~

Mean

Median

Mode

2600

2800

3000

CHART 3-4 A Negatively Skewed Distribution

Self-Review 3-4

The weekly sales from a sample of Hi-Tec electronic supply stores were organized into a frequency distribution. The mean of weekly sales was computed to be $105,900, the median $105,000,and the mode $104,500. (a) (b)

Sketch the sales in the form of a smoothed frequency polygon. Note the location of the mean, median, and mode on the X-axis. Is the distribution symmetrical, positively skewed, or negatively skewed? Explain.

Exercises 21. The unemployment rate in the state of Alaska for the 12 months of 2003 is given in the table below: Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

8.6

8.8

8.4

7.8

7.2

7.4

6.9

6.8

7.1

7.5

7.9

8.6

a. What is the arithmetic mean of the Alaskan unemployment rates? b. Find the median and the mode for the unemployment rates. c. Compute the arithmetic mean and median for just the winter (Dec-Mar) months. Is it much different? 22. Big Orange Trucking is designing an information system for use on "in-cab" communications. It must summarize data from eight sites throughout a region to describe typical conditions. Compute an appropriate measure of central location for each of the three variables shown in the table on the next page.

71

Describing Data: Numerical Measures

City Anniston, AL Atlanta, GA Augusta, GA Birmingham, AL Jackson, MS Meridian, MS Monroe, LA Tuscaloosa, AL

Wind Direction

Temperature

Pavement

West Northwest Southwest South Southwest South Southwest Southwest

89 86 92 91 92 92 93 93

Dry Wet Wet Dry Dry Trace Wet Trace

The Geometric Mean The geometric mean is never greater than the arithmetic mean.

The geometric mean is useful in finding the average of percentages, ratios, indexes, or growth rates. It has a wide application in business and economics because we are often interested in finding the percentage changes in sales, salaries, or economic figures, such as the Gross Domestic Product, which compound or build on each other. The geometric mean of a set of n positive numbers is defined as the nth root of the product of n values. The formula for the geometric mean is written:

I

[3-4]

GEOMETRIC MEAN

I

The geometric mean will always be less than or equal to (never more than) the arithmetic mean. Also all the data values must be positive. As an example of the geometric mean, suppose you receive a 5 percent increase in salary this year and a 15 percent increase next year. The average annual percent increase is 9.886, not 10.0. Why is this so? We begin by calculating the geometric mean. Recall, for example, that a 5 percent increase in salary is 105 percent. We will write it as 1.05.

GM

=

Y(1.05)(1.15)

=

1.09886

This can be verified by assuming that your monthly earning was $3,000 to start and you received two increases of 5 percent and 15 percent. Raise 1 = $3,000 (.05) = $150.00 Raise 2

= $3,150 (.15) = 472.50

Total

$622.50

Your total salary increase is $622.50. This is equivalent to:

= $296.58 $3,296.58 (.09886) = 325.90 $3,000.00 (.09886)

$622.48 is about $622.50 The following example shows the geometric mean of several percentages.

EXAMPLE

The return on investment earned by Atkins Construction Company for four successive years was: 30 percent, 20 percent, -40 percent, and 200 percent. What is the geometric mean rate of return on investment? . The number 1.3 represents the 30 percent return on investment, which is the "original" investment of 1.0 plus the "return" of 0.3. The number 0.6 represents the loss of 40

72

Chapter 3

percent, which is the original investment of 1.0 less the loss of 0.4. This calculation assumes the total return each period is reinvested or becomes the base for the next period. In other words, the base for the second period is 1.3 and the base for the third period is (1.3)(1.2) and so forth. Then the geometric mean rate of return is 29.4 percent, found by GM

= -\!(X1)(X2)· .. (Xn) = ~(1.3)(1.2)(0.6)(3.0) = ~2.808 = 1.294

The geometric mean is the fourth root of 2.808. So, the average rate of return (compound annual growth rate) is 29.4 percent. Notice also that if you compute the arithmetic mean [(30 + 20 - 40 + 200)/4 = 52.5], you would have a much larger number, which would overstate the true rate of return!

A second application of the geometric mean is to find an average percent increase over a period of time. For example, if you earned $30,000 in 1995 and $50,000 in 2005, what is your annual rate of increase over the period? The rate of increase is determined from the following formula.

AVERAGE PERCENT INCREASE OVER TIME

GM =

n

Value at end of period _ 1 Value at start of period

[3-5]

In the above box n is the number of periods. An example will show the details of finding the average annual percent increase. During the decade of the 1990s, Las Vegas, Nevada, was the fastest-growing metropolitan area in the United States. The population increased from 852,737 in 1990 to 1,563,282 in 2000. This is an increase of 710,545 people or an 83 percent increase over the 10-year period. What is the average annual increase?

SOILUJlll:0.NI

There are 10 years between 1990 and 2000 so n = 10. Then formula (3-5) for the geometric mean as applied to this type of problem is: GM

=n

Value at end of period _ 1.0 = Value at start of period

10

1,563,282 - 1.0 = 1.0625 - 1.0 852,737

= .0625

The value of .0625 indicates that the average annual growth over the 10-year period was 6.25 percent. To put it another way, the population of Las Vegas increased at a rate of 6.25 percent per year from 1990 to 2000.

Self-Review J.:-5

1.

2.

The percent increase in sales for the last 4 years at Combs Cosmetics were: 4.91, 5.75, 8.12, and 21.60. (a) Find the geometric mean percent increase. (b) Find the arithmetic mean percent increase. (c) Is the arithmetic mean equal to or greater than the geometric mean? Production of Cablos trucks increased from 23,000 units in 1984 to 120,520 units in 2004. Find the geometric mean annual percent increase.

Exercises 23. Compute the geometric mean of the following percent increases: 8, 12, 14, 26, and 5. 24. Compute the geometric mean of the following percent increases: 2, 8, 6, 4, 10, 6, 8, and 4.

Describing Data: Numerical Measures

73

25. Listed below is the percent increase in sales for the MG Corporation over the last 5 years. Determine the geometric mean percent increase in sales over the period.

I 9.4

13.8

11.7

11.9

14.7

I

26. In 1996 a total of 14,968,000 taxpayers in the United States filed their individual tax returns electronically. By the year 2002 the number increased to 46,282,200. What is the geometric mean annual increase for the period?

27. The Consumer Price Index is reported monthly by the U.S. Bureau of Labor Statistics. It reports the change in prices for a market basket of goods from one period to another. The index for 1992 was 140.3, by 2003 it increased to 184.6. What was the geometric mean annual increase for the period? 28. In 1976 the nationwide average price of a gallon of unleaded gasoline at a self-serve pump was $0.605. By 2004 it increased to $1.941. What was the geometric mean annual increase for the period? 29. In 1999 there were 42.0 million pager subscribers. By 2004 the number of subscribers increased to 70.0 million. What is the geometric mean annual increase for the period? 30. The information below shows the cost for a year of college in public and private colleges in 1992 and 2003. What is the geometric mean annual increase for the period for the two types of colleges? Compare the rates of increase.

Type of College

Public Private

1992

2003

$ 4,975 12,284

$ 8,954 22,608

Why Study Dispersion? The average is not

representative because of the large spread.

A measure of location, such as the mean or the median, only describes the center of the data. It is valuable from that standpoint, but it does not tell us anything about the spread of the data. For example, if your nature guide told you that the river ahead averaged 3 feet in depth, would you want to wade across on foot without additional information? Probably not. You would want to know something about the variation in the depth. Is the maximum depth of the river 3.25 feet and the minimum 2.75 feet? If that is the case, you would probably agree to cross. What if you learned the river depth ranged from 0.50 feet to 5.5 feet? Your decision would probably be not to cross. Before making a decision about crossing the river, you want information on both the typical depth and the dispersion in the depth of the river. A small value for a measure of dispersion indicates that the data are clustered closely, say, around the arithmetic mean. The mean is therefore considered representative of the data. Conversely, a large measure of dispersion indicates that the mean is not reliable. Refer to Chart 3-5. The 100 employees of Hammond Iron Works, Inc., a steel fabricating company, are organized into a histogram based on the number of years of employment with the company. The mean is 4.9 years, but the spread of the data is from 6 months to 16.8 years. The mean of 4.9 years is not very representative of all the employees. A second reason for studying the dispersion in a set of data is to compare the spread in two or more distributions. Suppose, for example, that the new PDM/3 computer is assembled in Baton Rouge and also in Tucson. The arithmetic mean hourly output in both the Baton Rouge plant and the Tucson plant is 50. Based on the two means, one might conclude that the distributions of the hourly outputs are identical. Production records for 9 hours at the two plants, however, reveal that this conclusion is not correct (see Chart 3-6). Baton Rouge production varies from 48 to 52 assemblies per hour. Production at the Tucson plant is more erratic, ranging from 40 to 60 per hour. Therefore, the hourly output for Baton Rouge is clustered near the mean of 50; the hourly output for Tucson is more dispersed.

Chapter 3

74

20

Ii I

r

en Q)

I-

» 0

!:'I~~=:;j~a:­

I Statistics in Action

Q)

I

II ,The t.Jcit~dStates .

'j

i' tried to become

'1

r

l'os~LSel1'ice has

"E.

w

i

0

I more ~'userfriendly" 1,

0

I I

liil thelast several years. A recent survey I sh!>v.ftid thatcus-' i tomersweni inter': ,

I

10

E

'I

I est~di~~ore!

CHART 3-5 Histogram of Years of Employment at Hammond Iron Works, Inc.

I consistency in the

I

20

10 Years

•

time it takes to make a delivery. Under the old conditions, a

000 00000

Baton Rouge

i10ciirfetter mighf I

take only one day to . deliver, or it might take severaL "Just tell me how many days ahead I need to mail the birthday card to Mom so it g~ts the~eon he! . birl:h~ay,not early, i notlate," was a com: >ITI()Ilc°nt~l~int. The

48

49

50

51

52

X

o

Tucson

o

o

0 CJ 0

o o

o

~~~~«~~~~~oo~~~~~w~~~oo

r

r; ,~:~s~~~i~fi:~:CY'i~

X

Hourly production

I: standard d~viati()n of I~~~~€l}~~~ry tiIIles. , A measure of dispersion can be used to evaluate the reliability of two or more measures of location.

CHART 3-6 Hourly Production of Computers at the Baton Rouge and Tucson Plants

Measures of Dispersion We will consider several measures of dispersion. The range is based on the largest and the smallest values in the data set. The mean deviation, the variance, and the standard deviation are all based on deviations from the arithmetic mean.

Range The simplest measure of dispersion is the range. It is the difference between the largest and the smallest values in a data set. In the form of an equation: RANGE

Range

= Largest value -

Smallest value

[3-6]

The range is widely used in statistical process control (SPC) applications because it is very easy to calculate and understand.

75

Describing Data: Numerical Measures

Refer to Chart 3-6. Find the range in the number of computers produced per hour for the Baton Rouge and the Tucson plants. Interpret the two ranges. The range of the hourly production of computers at the Baton Rouge plant is 4, found by the difference between the largest hourly production of 52 and the smallest of 48. The range in the hourly production for the Tucson plant is 20 computers, found by 60 - 40. We therefore conclude that (1) there is less dispersion in the hourly production in the Baton Rouge plant than in the Tucson plant because the range of 4 computers is less than a range of 20 computers, and (2) the production is clustered more closely around the mean of 50 at the Baton Rouge plant than at the Tucson plant (because a range of 4 is less than a range of 20). Thus, the mean production in the Baton Rouge plant (50 computers) is a more representative measure of location than the mean of 50 computers for the Tucson plant.

Mean Deviation A defect of the range is that it is based on only two values, the highest and the lowest; it does not take into consideration all of the values. The mean deviation does. It measures the mean amount by which the values in a population, or sample, vary from their mean. In terms of a definition:

MEAN DEVIATION The arithmetic mean of the absolute values of the deviations from the arithmetic mean. In terms of a formula, the mean deviation, designated MD, is computed for a sample by:

I

MEAN DEVIATION

MD=

2:IX-XI n

[3-71 1

where: X is the value of each observation. X is the arithmetic mean of the values. n is the number of observations in the sample. II indicates the absolute value. Why do we ignore the signs of the deviations from the mean? If we didn't, the positive and negative deviations from the mean would exactly offset each other, and the mean deviation would always be zero. Such a measure (zero) would be a useless statistic. The number of cappuccinos sold at the Starbucks location in the Orange County Airport between 4 P.M. and 7 P.M. for a sample of 5 days last year were: 103, 97, 101, 106, and 103. Determine the mean deviation and interpret.

76

Chapter 3

The mean deviation is the mean of the amounts that individual observations differ from the arithmetic mean. To find the mean deviation of a set of data, we begin by finding the arithmetic mean. The mean number of cappuccinos sold is 102, found by (103 + 97 + 101 + 106 + 103)/5. Next we find the amount by which each observation differs from the mean. Then we sum these differences, ignoring the signs, and divide the sum by the number of observations. The result is the mean amount the observations differ from the mean. A small value for the mean deviation indicates that the data are clustered near the mean, whereas a large value for the mean deviation indicates greater dispersion in the data. Here are the details of the calculations using formula (3-7).

(x-i)

Number of Cappuccinos Sold (103 (97 (101 (106 (103

103 97 101 106 103

-

102) 102) 102) 102) 102)

=

Absolute Deviation 1

= -5 = -1 = 4 =

5 1 4 1

1 Total

MD

12

= k\X n- X\ = ~2 = 2.4

The mean deviation is 2.4 cappuccinos per day. The number of cappuccinos deviates, on average, by 2.4 cappuccinos from the mean of 102 cappuccinos per day.

Advantages of mean deviation

Self-Review 3-6

The mean deviation has.two advantages. First, it uses all the values in the computation. Recall that the range uses only the highest and the lowest values. Second, it is easy to understand-it is the average amount by which values deviate from the mean. However, its drawback is the use of absolute values. Generally, absolute values are difficult to work with, so the mean deviation is not used as frequently as other measures of dispersion, such as the standard deviation. The weights of cpntainers being shipped to Ireland are (in thousands of pounds):

I 95 (a) (b) (c)

103

105

110

104

105

112

90

I

What is the range of the weights? Compute the arithmetic mean weight. Compute the mean deviation of the weights.

Exercises For Exercises 31-36, calculate the (a) range, (b) arithmetic mean, and (c) mean deviation, and (d) interpret the range and the mean deviation.

31. There were five customer service representatives on duty at the Electronic Super Store during last weekend's sale. The numbers of HDTVs these representatives sold are: 5, 8, 4,10, and 3.

32. The Department of Statistics at Western State University offers eight sections of basic statistics. Following are the numbers of students enrolled in these sections: 34, 46, 52, 29, 41, 38, 36, and 28. 33. Dave's Automatic Door installs automatic garage door openers. The following list indicates the number of minutes needed to install a sample of 10 door openers: 28, 32, 24, 46, 44, 40, 54, 38, 32, and 42.

Describing Data: Numerical Measures

77

34. A sample of eight companies in the aerospace industry was surveyed as to their return on investment last year. The results are (in percent): 10.6, 12.6, 14.8, 18.2, 12.0, 14.8, 12.2, and 15.6. 35. Ten experts rated the taste of a newly developed sushi pizza topped with tuna, rice, and kelp on a scale of 1 to 50. The ratings were: 34, 35, 41, 28, 26, 29, 32, 36, 38, and 40. 36. A sample of the personnel files of eight employees at Acme Carpet Cleaners, Inc., revealed that, during a six-month period, they lost the following numbers of days due to illness: 2, 0, 6,3,10,4,1, and 2.

Variance and Standard Deviation Variance and standard deviation are based on squared deviations from the mean.

The variance and standard deviation are also based on the deviations from the mean. However, instead of using the absolute value of the deviations, the variance, and the standard deviation square the deviations.

VARIANCE The arithmetic mean of the squared deviations from the mean. The variance is nonnegative and is zero only if all observations are the same.

STANDARD DEVIATION The square root of the variance.

Population Variance The formulas for the population variance and the sample variance are slightly different. The population variance is considered first. (Recall that a population is the totality of all observations being studied.) The population variance is found by:

I

POPULATION VARIANCE

where: is the symbol for the population variance (0" is the lowercase Greek letter sigma). It is usually referred to as "sigma squared." X is the value of an observation in the population. /.L is the arithmetic mean of the population. N is the number of observations in the population. 0"2

Note the process of computing the variance. • We begin by finding the mean. • Next we find the difference between each observation and the mean and square that difference. o Then we sum all the squared differences. o And finally we divide the sum of the squared differences by the number of items in the population. So you might think of the population variance as the mean of the squared difference between each value and the mean. For populations whose values are near the mean, the variance will be small. For populations whose values are dispersed from the mean, the population variance will be large. The variance overcomes the problem of the range by using all the values in the population, whereas the range uses only the largest and the smallest. We overcome the issue where k(X - /.L) = 0 by squaring the differences, instead of using the absolute values. Squaring the differences will always result in non-negative values. So, the variance will never be negative and it will be zero only when all the values in the data set are the same.

78

Chapter 3

EXAMPLE

The number of traffic citations issued during the last five months in Beaufort South Carolina, is: 38, 26, 13, 41, and 22. What is the population variance?

SOLUTION

We consider these data a population because the last five months' citations are all the values possible over the period. The details of the calculations follow: Number (X)

-

38 26 13 41 22

140

X-".,

(X_".,)2

+10 -2 -15 +13 -6 O·

100 4 225 169 36

fL = "i,X =

534

0'2

N

140 = 28 5

= "i,(X N fLY = 5;4 = 106.8

'Sum of the deviations from mean must equal zero.

Like the range and the mean deviation, the variance can be used to compare the dispersion in two or more sets of observations. For example, the variance for the number of citations issued in Beaufort County was just computed to be 106.8. If the variance in the number of citations issued in Marlboro County, South Carolina, is 342.9, we conclude that (1) there is less dispersion in the distribution of the number of citations issued in Beaufort County than in Marlboro County (because 106.8 is less than 342.9); and (2) the number of citations in Beaufort County is more closely clustered around the mean of 28 than for the number of citations issued in Marlboro County. Thus the mean number of citations issued in Beaufort County is a more representative measure of location than the mean number of citations in Marlboro County.

Variance is difficult to interpret because the units are squared. Standard deviation is in the same units as the data.

Population Standard Deviation Both the range and the mean deviation are easy to interpret. The range is the difference between the high and low values of a set of data, and the mean deviation is the mean of the deviations from the mean. However, the variance is difficult to interpret for a single set of observations. The variance of 106.8 for the number of citations is not in terms of citations, but rather "citations squared." There is a way out of this dilemma. By taking the square root of the population variance, we can transform it to the same unit of measurement used for the original data. The square root of 106.8 citations squared is 10.3 citations. The square root of the population variance is called the population standard deviation. POPULATION STANDARD DEVIATION

Self-Review 3-7

[3-9]

The Philadelphia office of Price Waterhouse Coopers LLP hired five accounting trainees this year. Their monthly starting salaries were: $3,536; $3,173; $3,448; $3,121; and $3,622. (a) (b) (c) (d)

Compute the population mean. Compute the population variance. Compute the population standard deviation. The Pittsburgh office hired six trainees. Their mean monthly salary was $3,550, and the standard deviation was $250. Compare the two groups.

Describing Data: Numerical Measures

79

Exercises 37. Consider these five values a population: 8, 3, 7, 3, and 4. a. Determine the mean of the population. b. Determine the variance. 38. Consider these six values a population: 13, 3, 8, 10, 8, and 6. a. Determine the mean of the population. b. Determine the variance. 39. The annual report of Dennis Industries cited these primary earnings per common share for the past 5 years: $2.68, $1.03, $2.26, $4.30, and $3.58. If we assume these are population values, what is: a. The arithmetic mean primary earnings per share of common stock? b. The variance? 40. Referring to Exercise 39, the annual report of Dennis Industries also gave these returns on stockholder equity for the same five-year period (in percent): 13.2, 5.0, 10.2, 17.5, and 12.9. a. What is the arithmetic mean return? b. What is the variance? 41. Plywood, Inc. reported these returns on stockholder equity for the past 5 years: 4.3, 4.9, 7.2,6.7, and 11.6. Consider these as population values. a. Compute the range, the arithmetic mean, the variance, and the standard deviation. b. Compare the return on stockholder equity for Plywood, Inc. with that for Dennis Industries cited in Exercise 40. 42. The annual incomes of the five vice presidents of TMV Industries are: $125,000; $128,000; $122,000; $133,000; and $140,000. Consider this a population. a. What is the range? b. What is the arithmetic mean income? c. What is the population variance? The standard deviation? d. The annual incomes of officers of another firm similar to TMV Industries were also studied. The mean was $129,000 and the standard deviation $8,612. Compare the means and dispersions in the two firms. j.L = !'XIN. We just changed the symbols for the sample mean; that is X = !'Xln. Unfortunately, the conversion from the population variance to the sample variance is not as direct. It requires a change in the denominator. Instead of substituting n (number in the sample) for N (number in the population), the denominator is n - 1. Thus the formula for the sample variance is:

Sample Variance The formula for the populatiQn mean is

I

SAMPlE VARIANCE

!'(X - X)2

n-1

[3-10]

I

where: is the sample variance. X is the value of each observation in the sample. X is the mean of the sample. n is the number of observations in the sample.

S2

Why is this change made in the denominator? Although the use of n is logical, it tends to underestimate the population variance, 0'2. The use of (n 1) in the denominator provides the appropriate correction for this tendency. Because the primary use of sample statistics like S2 is to estimate population parameters like 0'2, (n - 1) is preferred to n in defining the sample variance. We will also use this convention when computing the sample standard deviation.

I The hourly wages for a sample of part-time employ~es at Fr~lt Packers: Inc. are: $12, $20, $16, $18, and $19. What is the sample variance?

It!.

.',

80

Chapter 3

!

The sample variance is computed by using formula (3-10).

I -

!,X n

$85 = $17 5

X=-

.J

Hourly Wage (X)

x-x

{X - X)2

$12 20 16 18 19

-$5 3 -1 1 2

25 9 1 1 4

$85

0

I> Statistics in Action' "'i iAIberLPujols of the! iSt.~:Couis Cardinals 'I i had th~ highest batI ti~g a,verage at .359 , duri~theG2003 seha: .1 ; son. Lony ,wynn It 1.394 in the strike! I shortened season of :.1994, and,Ted ,. I ! Williams hit .406 inl : 1941.Noomihashit lover .400 since)941. The mean batting , :, average has i

I

I

-

-

-

40

I S2

I

[':b~~~iUtt!~~~:t

= =

!'(X - X)2

n-1

40

-5-1

10 in dollars squared

J ·'''"'"'~;10rFr,r';'''''''''"lr'''.''''?':-'~'''''''':T'~'''''~'''',·rr,,,,;""'""'F'-~:':'''F'''''''::'''''f'';'8':''·:;='''t;'1'0'fr''1:~·''7;:''''';f"';"":-'~-~:'I""",;-;;"·..";",--=,;,,,'!t,,,,,,,,i

i than 100 years, but the standard deviation declined from .049 to .031. This indicate; less dispersion in the batting averages today and helps explain the lackof any .400 hit, ters in recent times.

Ii

Sample Standard Deviation The sample standard deviation is used as an estimator of the population standard deviation. As noted previously, the population standard deviation is the square root of the population variance. Likewise, the sample standard deviation is the square root of the sample variance. The sample standard deviation is most easily determined by:

1STANDARD DEVIATION

s=

~!'(X -

X)2

n-1

[3-111 1

EXAMPLE

The sample variance in the previous example involving hourly wages was computed to be 10. What is the sample standard deviation?

SOLUTION

The sample standard deviation is $3.16, found by v1D. Note again that the sample variance is in terms of dollars squared, but taking the square root of 10 gives us $3.16, which is in the same units (dollars) as the original data.

Software Solution On page 68 we used Excel to determine the mean and median of the Whitner Autoplex sales data. You will also note that it outputs the sample standard deviation. Excel, like most other statistical software, assumes the data are from a sample. Another software package that we will use in this text is MINITAB. This package uses a spreadsheet format, much like Excel, but produces a wider variety of statistical output. The information for the Whitner Autoplex selling prices follows. Note that a histogram (although the default is to use a class interval of $2,000 and 11 classes) is

81

Describing Data: Numerical Measures

included as well as the mean and the sample standard deviation. The mean and standard deviation are reported in thousands of dollars.

20

15

a-t: (1)

8-

~

10

5

0

20

16

28

24

32

36

Price($OOO)

Self-Review 3-8

The weights of the contents of several small aspirin bottles are (in grams): 4, 2, 5, 4, 5, 2, and 6. What is the sample variance? Compute the sample standard deviation.

Exercises For Exercises 43-48, do the following: a. Compute the sample variance. b. Determine the sample standard deviation. 43. Consider these values a sample: 7, 2, 6, 2, and 3. 44. The following five values are a sample: 11, 6, 10, 6, and 7. a. Compute the sample variance. b. Determine the sample standard deviation. 45. Dave's Automatic Door, referred to in Exercise 33, installs automatic garage door openers. Based on a sample, following are the times, in minutes, required to install 10 door openers: 28, 32, 24, 46, 44, 40, 54, 38, 32, and 42. 46. The sample of eight companies in the aerospace industry, referred to in Exercise 34, was surveyed as to their return on investment last year. The results are: 10.6, 12.6, 14.8, 18.2, 12.0,14.8,12.2, and 15.6. 47. The Houston, Texas, Motel Owner Association conducted a survey regarding weekday motel rates in the area. Listed below is the room rate for business class guests for a sample of 10 motels.

I $101

$97

$103

$110

$78

$87

$101

$80

$106

$88

I

48. A consumer watchdog organization is concerned about credit card debt. A survey of 10 young adults with credit card debt of more than $2,000 showed they paid an average of just

82

Chapter 3

over $100 per month. Listed below is the amounts each young adult paid last month against their balances.

$110

$126

$103

$93

$99

$113

$87

$101

$109

$100

I

! ••..•. ~~ I·~·:···· ..

!Statistics. inAction

II An average is a value used to represent all ttliedat~;Ho\l'ever;'

I oftell :In3verage does i not.give theJullpici ture of the data;

IIIlvestors are often ! faced with this probI lem 'Yhenconsideri. ing two. inyeshnents I (in mutualfunds such i as Yanguard's Index I 500 andGNMA . : funds;. In August 2003, the Index 500 fund's annualized iretUrnC,vas'=11;26 c .• e , i with a standarddeviationofl6.9. The GNMA fund had an annualized return of : 8.86% with a stant dard deviation of ! 2.68. These statistics [reflect the weilI.known tradeoff i between return and I·risk. The standard i deviation sholYs that I the Index 500 returns I .can vary widely. In I fact, annual returns ioverthe last 10 years ! ranged between I -'-22.15 to 37.45%: i The GNMA fund's I standard deviation is much less. Its annual returns over the las.' t 10 years ran. ged between -0.95 .toll.Z2%

I. I

I.

Interpretation and Uses of the Standard Deviation The standard deviation is commonly used as a measure to compare the spread in two or more sets of observations. For example, the standard deviation of the biweekly amounts invested in the Dupree Paint Company profit-sharing plan is computed to be $7.51. Suppose these employees are located in Georgia. If the standard deviation for a group of employees in Texas is $10.47, and the means are about the same, it indicates that the amounts invested by the Georgia employees are not dispersed as much as those in Texas (because $7.51 < $10.47). Since the amounts invested by the Georgia employees are clustered more closely about the mean, the mean for the Georgia employees is a more reliable measure than the mean for the Texas group.

Chebyshev's Theorem We have stressed that a small standard deviation for a set of values indicates that these values are located close to the mean. Conversely, a large standard deviation reveals that the observations are widely scattered about the mean. The Russian mathematician P. L. Chebyshev (1821-1894) developed a theorem that allows us to determine the minimum proportion of the values that lie within a specified number of standard deviations of the mean. For example, according to Chebyshev's theorem, at least three of four values, or 75 percent, must lie between the mean plus two standard deviations and the mean minus two standard deviations. This relationship applies regardless of the shape of the distribution. Further, at least eight of nine values, or 88.9 percent, will lie between plus three standard deviations and minus three standard deviations of the mean. At least 24 of 25 values, or 96 percent, will lie between plus and minus five standard deviations of the mean. Chebyshev's theorem states:

CHEBYSHEV'S THEOREM For any set of observations (sample or population), the proportion of the values that lie within k standard deviations of the mean is at least 1 - 11k2 , where k is any constant greater than 1.

U~~'~v:vanguard.coin)

EXAMPLE

The arithmetic mean biweekly amount contributed by the Dupree Paint employees to the company's profit-sharing plan is $51.54, and the standard deviation is $7.51. At least what percent of the contributions lie within plus 3.5 standard deviations and minus 3.5 standard deviations of the mean?

SOLUTION

About 92 percent, found by

1 1 - k2

=

1 1 - (3.5)2

=

1 1 - 12.25

=

0.92

Describing Data: Numerical Measures

83

The Empirical Rule Empirical Rule applies only to symmetrical, bell-shaped distributions.

Chebyshev's theorem is concerned with any set of values; that is, the distribution of values can have any shape. However, for a symmetrical, bell-shaped distribution such as the one in Chart 3-7, we can be more precise in explaining the dispersion about the mean. These relationships involving the standard deviation and the mean are described by the Empirical Rule, sometimes called the Normal Rule.

EMPIRICAL RULE For a symmetrical, bell-shaped frequency distribution, approximately 68 percent of the observations will lie within plus and minus one standard deviation of the mean; about 95 percent of the observations will lie within plus and minus two standard deviations of the mean; and practically all (99.7 percent) will lie within plus and minus three standard deviations of the mean.

These relationships are portrayed graphically in Chart 3-7 for a bell-shaped distribution with a mean of 100 and a standard deviation of 10.

70

80

90 100 110 120 130 1--68%-1 1...· - - - 95%---...·'1 1-+<----- 99.7%-----+-1·1

CHART 3-7 A Symmetrical, Bell-Shaped Curve Showing the Relationships between the Standard Deviation and the Observations It has been noted that if a distribution is symmetrical and bell-shaped, practically all of the observations lie between the mean plus and minus three standard deviations. Thus, if X = 100 and s = 10, practically all the observations lie between 100 + 3(10) and 100 - 3(10), or 70 and 130. The range is therefore 60, found by 130 - 70. Conversely, if we know that the range is 60, we can approximate the standard deviation by dividing the range by 6. For this illustration: range -;- 6 = 60 -;- 6 = 10, the standard deviation. I

EXAMPLE

I' A sample of the monthly rental rates at University Park Apartments approximates a h symmetrical, bell-shaped distribution. The sample mean is $500; the standard devia- ~ tion is $20. Using the Empirical Rule, answer these questions: f

1. 2. 3.

About 68 percent of the rental rates are between what two amounts? About 95 percent of the rental rates are between what two amounts? Almost all of the rental rates are between what two amounts?

I

84

Chapter 3

1. About 68 percent are between $480 and $520, found by X ± 1s = $500 ± 1($20). 2. About 95 percent are between $460 and $540, found by X ± 2s = $500 ± 2($20). 3. Almost all (99.7 percent) are between $440 and $560, found by X ± 3s = $500 ± 3($20).

Self-Review 3-9

The Pitney Pipe Company is one of several domestic manufacturers of PVC pipe. The quality-control department sampled 600 10"foot lengths. At a point 1 foot from the end of the pipe they measured the outside diameter. The mean was 14.0 inches and the standard deviation 0.1 inches. (a) (b)

If the shape of the distribution is not known, at least what percent of the observations will be between 13.,85 inches and 14.15 inches? If we assume that the distribution of diameters is symmetrical and bell-shaped, about 95 percent of the observations will be between what two values?

Exercises 49. According to Chebyshev's theorem, at least what percent of any set of observations will be within 1.8 standard deviations of the mean?

50. The mean income of a group of sample observations is $500; the standard deviation is $40. According to Chebyshev's theorem, at least what percent of the incomes will lie between $400 and $600? 51. The distribution of the weights of a sample of 1,400 cargo containers is symmetric and bellshaped. According to the Empirical Rule, what percent of the weights will lie: a. Between X - 2s and X+ 2s? b. Between Xand X+ 2s? Below X- 2s? 52. The following graph portrays the distribution of the number of Biggie-sized soft drinks sold at the nearby Wendy's for the last 141 days. The mean number of drinks sold per day is 91.9 and the standard deviation is 4.67.

If we use the Empirical Rule, sales will be between what two values on 68 percent of the days? Sales will be between what two values on 95 percent of the days?

Chapter Outline I. A measure of location is a value used to describe the center of a set of data. A. The arithmetic mean is the most widely reported measure of location. 1. It is calculated by adding the values of the observations and dividing by the total number of observations. a. The formula for a population mean of ungrouped or raw data is

85

Describing Data: Numerical Measures

fL =

~X

[3-1]

X=

~X n

[3-2]

N b. The formula for the mean of a sample is

Most colleges report the "average class size." This information can be misleading becilUse average' class size can be found several ways. If \ve find the number of students in each class at a particular universily, the result isthe ~ean number of stUdents per class. If wecompiledalist of the class sizes for each student arid . find theinean class size, we might find the mean to be quite different. One school found the mean number. of stUdents in each of their 747 classes to be 40. But when they found the mean from a list of the class sizes of each student it was 147. Why the disparity? Because there are few students in the small classes and a larger number of students in the larger classes, which has .the effect of increasing the mean class size when it iscalculated this way. A school could reduce this mean class size for each student by reducing the number ' of students in each class. That is, cut out the large freshman lecture classes.

2. The major characteristics of the arithmetic mean are: a. At least the interval scale of measurement is required. b. All the data values are used in the calculation. c. A set of data has only one mean. That is, it is unique. d. The sum of the deviations from the mean equals O. B. The weighted mean is found by multiplying each observation by its corresponding weight. 1. The formula for determining the weighted mean is

+ W2X2 + WsX3 + ... + w"xn w1 + w2 + W3 + ... + wn

W 1X1

-

Xw =

[3-3]

2. It is a special case of the arithmetic mean. C. The median is the value in the middle of a set of ordered data. 1. To find the median, sort the observations from smallest to largest and identify the middle value. 2. The major characteristics of the median are: a. At least the ordinal scale of measurement is required. b. It is not influenced by extreme values. c. Fifty percent of the observations are larger than the median. d. It is unique to a set of data. D. The mode is the value that occurs most often in a set of data. 1. The mode can be found for nominal-level data. 2. A set of data can have more than one mode. E. The geometric mean is the nth root of the product of n positive values. 1. The formula for the geometric mean is GM = ~ (X1)(X2)

•••

(Xn)

[3-4]

2. The geometric mean is also used to find the rate of change from one period to another. GM =

n

Value at end of period _ 1 Value at beginning of period

[3-5]

3. The geometric mean is always equal to or less than the arithmetic mean. II. The dispersion is the variation or spread in a set of data. A. The range is the difference between the largest and the smallest value in a set of data. 1. The formula for the range is .. Range = Largest value - Smallest value

[3-6]

2. The major characteristics of the range are: a. Only two values are used in its calculation. b. It is influenced by extreme values . c. It is easy to compute and to understand. B. The mean absolute deviation is the sum of the absolute values of the deviations from the mean divided by the number of observations. 1. The formula for computing the mean absolute deviation is

MD= ~Ix-xi

n 2. The major characteristics of the mean absolute deviation are: a. It is not unduly influenced by large or small values. b. All observations are used in the calculation. c. The absolute values are somewhat difficult to work with. C. The variance is the mean of the squared deviations from the arithmetic mean. 1. The formula for the population variance is

[3-7]

86

Chapter 3

[3-8]

2. The formula for the sample variance is S2

Z(X - X)2

=

[3-10]

n-1

3. The major characteristics of the variance are: a. All observations are used in the calculation.

b. It is not unduly influenced by extreme observations.

c. The units are somewhat difficult to work with; they are the original units squared. D. The standard deviation is the square rooCofthe variance. 1. The major characteristics of the standard deviation are:

a. It is in the same units as the original data. b. It is the square root of the average squared distance from the mean.

c. It cannot be negative. d. It is the most widely reported measure of dispersion. 2. The formula for the sample standard deviation is

s=

~Z(X _X)2

[3-11]

n-1 III. We interpret the standard deviation using two measures. A. Chebyshev's theorem states that regardless of the shape of the distribution, at least 1 - 1/k2 of the observations will be within k standard deviations of the mean, where k is greater than 1. B. The Empirical Rule states that for a bell-shaped distribution about 68 percent of the values will be within one standard deviation of the mean, 95 percent within two, and virtually all within three.

Pronunciation Key SYMBOL

MEANING

PRONUNCIATION

J.L

Population mean

mu

Z ZX

Operation of adding

sigma

Adding a group of values

sigma X

X Xw

Sample mean

X bar X bar sub w

GM

Geometric mean

GM

a2

Population Variance

sigma squared

Population standard deviation

sigma

.a

Weighted mean

Chapter Exercises 53. The accounting firm of Crawford and Associates has five senior partners. Yesterday the senior partners saw six, four, three, seven, and five clients, respectively. a. Compute the mean number and median number of clients seen by a partner. b. Is the mean a sample mean or a population mean? c. Verify that Z(X - J.L) = O. 54. Owens Orchards sells apples in a large bag by weight. A sample of seven bags contained the following numbers of apples: 23, 19, 26, 17, 21, 24, 22. a. Compute the mean number and median number of apples in a bag. b. Verify that Z(X - X) = O. 55. A sample of young adults using the Alltel Local Freedom Plan revealed the following numbers of calls received last week. Determine the mean and the median number of calls received.

52 34

43 46

30

32

38 18

30

42

41

5

12

46

39

37

87

Describing Data: Numerical Measures

56. The Citizens Banking Company is studying the number of times the ATM located in a Loblaws Supermarket at the foot of Market Street is used per day. Following are the numbers of times the machine was used over each of the last 30 days. Determine the mean number of times the machine was used per day. Assume the data to be a sample.

83 63 95

84 84 78

64 80 36

76 73 61

84 68 59

54 52 84

59 90 47

75 65 95

70 52 87

61 77 60

57. Listed below is the number of lampshades produced during the last 50 days at the American Lampshade Company in Rockville, GA. Compute the mean.

348 410 384 385 366 354

371 374 365 399 392 395

360 377 380 400 375 338

369 335 349 359 379 390

376 356 358 329 389 333

368 344 432 398 386

397 322 343 370 390

361 399 376 352 341

374 362 347 396 351

58. Trudy Green works for the True-Green Lawn Company. Her job is to solicit lawn-care business via the telephone. Listed below are the numbers of appointments she made in each of the last 25 hours of calling. What is the arithmetic mean number of appointments she made per hour? What is the median number of appointments per hour? Write a brief report summarizing the findings.

I

~

5 4

2

6

7

8

5 4

6

4

4

7

2

4

5

5

4

8

3 3

6

3

59. The Split-A-Rail Fence Company sells three types of fence to homeowners in suburban Seattle, Washington. Grade A costs $5.00 per running foot to install, Grade B costs $6.50 per running foot, and Grade C, the premium quality, costs $8.00 per running foot. Yesterday, Split-A-Rail installed 270 feet of Grade A, 300 feet of Grade B, and 100 feet of Grade C. What was the mean cost per foot of fence installed? 60. Rolland Poust is a sophomore in the College of Business at Scandia Tech. Last semester he took courses in statistics and accounting, 3 hours each, and earned an A in both. He earned a B in a five-hour history course and a B in a two-hour history of jazz course. In addition, he took a one-hour course dealing with the rules of basketball so he could get his license to officiate high school basketball games. He got an A in this course. What was his GPA for the semester? Assume that he receives 4 points for an. A, 3 for a B, and so on. What measure of location did you just calculate? 61. The table below shows the percent of the labor force that is unemployed and the size of the labor force for three counties in Northwest Ohio. Jon Elsas is the Regional Director of Economic Development. He must present a report to several companies that are considering locating in Northwest Ohio. What would be an appropriate unemployment rate to show for the entire region? . County Wood

Ottawa Lucas

Percent Unemployed

Size of Workforce

4.5 3.0 10.2

15,300 10,400 150,600

62. The American Automobile Association checks the prices of gasoline before many holiday weekends. Listed below are the self-service prices ($) for a sample of 15 retail outlets during the May 2004 Memorial Day weekend in the Detroit, Michigan, area.

1.94 1.91

1.92 1.99

1.85 1.95

1.89 1.98

1.99 1.89

1.99 1.96

1.91 1.94

1.96

88

Chapter 3

a. What is the arithmetic mean selling price? b. What is the median selling price? c. What is the modal selling price? 63. The metropolitan area of Los Angeles-Long Beach, California, is the area expected to show

64.

65.

66.

67.

the largest increase in the number of jobs between 1989 and 2010. The number of jobs is expected to increase from 5,164,900 to 6,286,800. What is the geometric mean expected yearly rate of increase? A recent article suggested that if you earn $25,000 a year today and the inflation rate continues at 3 percent per year, you'll need to make $33,598 in 10 years to have the same buying power. You would need to make $44,771 if the inflation rate jumped to 6 percent. Confirm that these statements are accurate by finding the geometric mean rate of increase. The~ages of a sample of Canadian tourists flying from Toronto to Hong Kong were: 32, 21, 60,47,54,17,72,55,33, and 41. a. Compute the range. b. Compute the mean deviation. c. Compute the standard deviation. The weights (in pounds) of a sample of five boxes being sent by UPS are: 12, 6, 7, 3, and 10. a. Compute the range. b. Compute the mean deviation. c. Compute the standard deviation. The Apollo space program lasted from 1967 until 1972 and included 13 missions. The missions lasted from as little as 7 hours to as long as 301 hours. The duration of each flight is listed below.

9

10

195 295

241 142

301

216

260

7

244

192

147

a. Explain why the flight times are a population. b. Find the mean and median of the flight times.

c. Find the range and the standard deviation of the flight times. 68. Creek Ratz is a very popular restaurant located along the coast of northern Florida. They serve a variety of steak and seafood dinners. During the summer beach season, they do not take reservations or accept "call ahead" seating. Management of the restaurant is concerned with the time a patron must wait before being seated for dinner. Listed below is the wait time, in minutes, for the 25 tables seated last Saturday night.

28

39

23

51

45 25

44 24

64

67 65 27

37 61

28

27

56 24

40 61

28 34

50

44

29

a. Explain why the times are a population. b. Find the mean and median of the times.

c. Find the range and the standard deviation of the times. 69. The manager of the local Wal-Mart Super Store is studying the number of items purchased by customers in the evening hours. Listed below is the number of items for a sample of 30 customers.

15 12 5

8 4 6

6

9

9

10

10

12

8

12

4 10

18

7

10

11

9

11

14

5

6

6

5

13

13 5

a. Find the mean and the median of the number of items. b. Find the range and the standard deviation of the number of items.

89

Describing Data: Numerical Measures

• exerCIses.com 70. The State of Indiana and the Kelley School of Business of Indiana University offer links to many data sources. Go to www.stats.indiana.edu, under the heading Data Tables, select Birth/Marriage/Death, under the state comparison select Birth and Death rates. The information for live births by state should appear. You may access the site directly by using: www.stats.indiana.edu/web/state/birth_st02_final.html. Suppose you are interested in the typical number of births per state. Compute the mean, median, and the standard deviation of the number of births per state and the number of births per 1000 population by state for the latest year available. You should be able to download this information into a software package to perform the calculations. Which of the measures of location is the most representative? Which data set would you recommend using: number of births per state or the number of births per 1000 population? Why? Suppose you are interested in birth rates for the 50 states and Washington, D.C. Compute the mean, median, and standard deviation. Write a brief report summarizing the data. 71. There are many financial websites that provide information on stocks by industry. For example, go to http://biz.yahoo.com and select Stock Research; under Analyst Research select Sectorllndustry. There are many choices available here such as Energy, Financial, and Healthcare. Select one of these sectors, such as Healthcare. Another list of choices is now available; select one such as Major Drug. A list of companies in that industry will appear. Select one of the variables available, such as the price to earnings ratio, listed as PIE. This variable is the ratio of the selling price of a share of the company's common stock to the earnings per share of common stock. Download this information into Excel and find the mean, median, and standard deviation. Go back to Sector/lndustry and choose another Sector and Industry. You might want to select Energy and then Coal. A list of companies will appear. Select the same variable as before. Download the information to Excel and find the mean, median, and standard deviation for thip industry. Compare the information on the two sectors. Write a brief report summarizing your findings. Are the means different? Is there more variability in one industry than another? 72. One of the most famous averages, the Dow Jones Industrial Average (DJIA), is not really an average. The following is a listing of the 30 companies whose stock prices make up the DJIA, their symbol, their current weight, and the closing value in May 2004. Use a software package to find the mean of the 30 stocks. The DJIA is 10,040.69. Is this the value you found for the average of the 30 stocks?

Company Alcoa Inc. Amer. IntI. Group American Express Boeing Co. Citigroup Inc. Caterpillar Inc. Disney (Walt) Co. DuPont (EI) General Electric General Motors Home Depot Inc. Honeywell IntI. Hewlett-Packard IBM Intel Corp.

Symbol

Price

AA

$30.00 71.25 48.60 43.43 46.50 74.37 23.15 41.65 30.34 44.01 33.63 33.32 20.15 86.95 27.36

AIG AXP BA C CAT DIS DD GE GM HD HON HPQ IBM INTC

Company Johnson & Johnson JP Morgan Chase Coca-Cola Co. McDonalds Corp. 3M Co. Altria Group Inc. Merck & Co. Microsoft Corp. Pfizer Inc. Procter & Gamble SBC Communcation United Tech Corp. Verizon Communication Wal-Mart Stores Exxon Mobil Corp.

Symbol

Price

JNJ JPM KO MCD MMM MO MRK MSFT PFE PG SBC UTX VZ WMT XOM

55.07 36.25 49.56 26.00 84.59 4'8.84 46.72 26.02 35.34 105.52 24.60 83.23 36.43 55.20 42.97

You may read about the history of the DJIA by going to http://www.djindexes.com and clicking on About the Dow. This will explain why it is not really an average. There are many sites you can visit to check the current value of the DJIA, http://money.cnn.com, http://www.foxnews.com/news/features/dow, and http://www.usatoday.com are three of

90

Chapter 3

the many sources. To find a list of the actual stocks that make up the average go to http:// www.b/oomberg.com.Onthetoolbar.click on Market Data, then down the left side of the screen select Stocks, and then select Dow. You should now have available a listing of the current selling price of 30 stocks that make up the DJIA.

Dataset Exercises 73. Refer to the Real Estate data, which reports information on homes sold in the Denver, Colorado, area last year. a. Select the variable selling price. 1. Find the mean, median, and the standard deviation. 2. Write a brief summary of the distribution of selling prices. b. Select the variable referring to the area of the home in square feet. 1. Find the mean, median, and the standard deviation. 2. Write a brief summary of the distribution of the area of homes. 74. Refer to the Baseball 2003 data, which reports information on the 30 major league teams for the 2003 baseball season. a. Select the variable team salary and find the mean, median, and the standard deviation. b. Select the variable that refers to the year in which the stadium was built. (Hint: Subtract the current year from the year in which the stadium was built to find the stadium age and work with that variable.) Find the mean, median, and the standard deviation. c. Select the variable that refers to the seating capacity of the stadium. Find the mean, median, and the standard deviation. 75. Refer to the CIA data, which reports demographic and economic information on 46 countries. a. Select the variable Life Expectancy. 1. Find the mean, median, and the standard deviation. 2. Write a brief summary of the distribution of life expectancy. b. Select the variable GDP/cap. 1. Find the mean, median, and the standard deviation. 2. Write a brief summary of the distribution GDP/cap.

Software Commands 1. The Excel Commands for the descriptive statistics on page 68 are: a. From the CD retrieve the Whitner data file, which is called Table2-1. b. From the menu bar select Tools and then Data Analysis. Select Descriptive Statistics and then click OK. c. For the Input Range, type A1:A81, indicate that the data are grouped by column and that the labels are in the first row. Click on Output Range, indicate that the output should go in D1 (or any place you wish), click on Summary statistics, then click OK. d. After you get your results, double-check the count in the output to be sure it contains the correct number of items.

Describing Data: Numerical Measures

2. The MINITAB commands for the descriptive summary on page 81 are: a. From the CD retrieve the Whitner data, which is called Whitner-Data. b. Select Stat, Basic Statistics, and then Display Descriptive Statistics. In the dialog box select Price as the variable and then click on Graphs in the lower right-hand corner. Within the dialog box select Histogram of data, with normal curve and click OK. Click OK in the next dialog box.

91

BYVlIflablctllopllonlllj:

'0

2665' 27.453 17.256: 16021

28G83

"36.a72

19587

'6

32

"

23169

32 47

56

19.251

'"56"

24.285 24.324 24sca

28670

I

38

35651 200~7

I

" '"

r !;t:!,:

Hlsll1!lrnmofdnlll:

P' Hlnlogtnm of dnln, wllh normal curve

-- r r

Ind!yldunlvnlucplol

Boxplolofdaln

~

51)

"

'"

':

~

~ ~

92

Chapter 3

Chapter 3 Answers to Self-Review 1. a.

3-1

b.

c.

X = ~X

X=

d. $66,775. The sample mean is our best estimate of the population mean. ...: ~X 2. a. fLIV .

498

6

Absolute Deviation

1-81 I 01 1+21 1+71 I +11 1+21 1+91 1-131

95 103 105 110 104 105 112 90

'd

$26 100 = $66,775

c. Statistic, because it is a sample value.

b. fL =

IX-XI

X

n

8 0 2 7

1 2 9 13

-

= 83

Total 42

c. Parameter, because it was computed using all the population values.

3-2

(95 x $400)

3-3

3-4

MD =

a. $237, found by:

+ (126 x $200) + (79 95 + 126 + 79

x $100) = $237.00

3-7

b. The profit per suit is $12, found by $237 - $200 cost - $25 commission. The total profit for the 300 suits is $3,600, found by 300 x $12. 1. a. $439 b. 3,3 2. a. 7,.found by (6 + 8)/2 = 7 b. 3,3 c. 0

42 "8

= 5.25 thousands of pounds

a. fL = $16 900 = $3,380

5

b.

IT2

+ (3 622 - 3 ,380)2 =(3'536 - 3 ,380)2 + ... 5' = 197 454 = 39,490.8

5

c.

a. 3-8

= V39,490.8 = 198.72 d. There is more variation in the Pittsburgh office because the standard deviation is larger. The mean is also larger in the Pittsburgh office. 2.33, found by: X=~X =278 =4 IT

x cPc:c: -0",,,,

4 2 5 4 5 2

~~~ 2:

Weekly sales ($000)

3-5

3-6

b. Positively skewed, because the mean is the largest average and the mode is the smallest. 1. a. About 9.9 percent, found by ~ 1.458602236, then 1.099 - 1.00 = .099 b. About 10.095 percent c. Greater than, because 10.095 > 8.39 120,520 2. 8.63 percent, found by 20 - - - - 1 = 23,000 1.0863 - 1

a. 22 thousands of pounds, found by 112 - 90 824 b. X = 8 = 103 thousands of pounds

82 =

3-9

X-X

6

0 -2 1 0 1 -2 2

28

0

(X_X)2

-

-

14

~(X - X)2 = ~ = 2 33 n -1

7- 1

.

8 = V2.33 = 1.53 a. k = 14.15.;014.00 = 1.5

1 1 - (1.5)2 = 1 - .44 = .56

b. 13.8 and 14.2

0 4 1 0 1 4 4

Describing Data Displaying and Exploring Data GOALS When you have completed this chapter you will be able to: Develop and interpret dot plot.

1a 2

Develop and interpret quarfiles, deciles, and percentiles.

3 4

Construct and interpret box plots.

5 6

Draw and interpret a scatter diagram.

Compute and understand the coefficient of skewness.

A major airline wanted some information on those enrolled in their "frequent flyer" program. A sample of 48 members resulted in the data shown in exercise 27, for the number of miles flown last year, to the nearest 1,000 miles, by each participant. Does the distribution show any outliers? (See Goal 3, Exercise 27.)

Set up and interpret a contingency table.

94

Chapter 4

Introduction Chapter 2 began our study of descriptive statistics. In order to transform raw or ungrouped data into a meaningful form, we organized the data into a frequency distribution. We presented the frequency distribution in graphic form as a histogram or a frequency polygon. This allowed us to visualize where the data tended to cluster, the largest and the smallest values, and the general shape of the data. In Chapter 3 we first computed several measures of location, such as the mean and the median. These measures of location allow us to report a typical value in the set of observations. We also computed several measures of dispersion, such as the range and the standard deviation. These measures of dispersion allow us to describe the variation or the spread in a set of observations. We continue our study of descriptive statistics in this chapter. We use several methods to display or describe distributions. We begin with graphical tools such as dot plots. These charts give us additional insight into the central location, dispersion, and general shape of a distribution. Next, we present some other numerical measures that let us see a distribution's dispersion, such as quartiles and percentiles. Finally, we consider techniques that show the relationship or association between two variables. When two variables are measured for each individual observation in a population or a sample the data are called bivariate data. Examples include: a student's age and class rank, whether a sampled product is acceptable or not and the shift on which it is manufactured, and the amount of electricity used in a month by a homeowner and the mean daily high temperature in the region for the month. A scatter diagram is a visual plot or graph of the bivariate data. On the other hand, a contingency table summarizes the data in a numerical cross tabulation.

Dot Plots In Chapter 2, we described a distribution of data with a histogram. We grouped 80 observations from the Whitner Autoplex data in Table 2-1 into seven classes and used a histogram (Chart 2-2) to show the distribution. From this picture, we can visualize the approximate central location and dispersion of the distribution. However, when we arranged the data into classes we lost the exact values of the observations. A dot plot, on the other hand, groups the data less and we do not lose the identity of the individual observations. To develop a dot plot we display a dot for each observation along a horizontal number line indicating the possible values of the data. If there are identical observations or the observations are too close to be shown individually, the dots are "piled" on top of each other. This allows us to see the shape of the distribution, estimate the value of central location, and know the minimum and maximum values and calculate the range. Dot plots are most useful for smaller data sets, whereas histograms tend to be most useful for large data sets. An example will show how to construct and interpret dot plots.

EXAMPLE

Recall in Table 2-1 on page 25 we presented data on the price of 80 vehicles sold last month at Whitner Autoplex in Raytown, Missouri. Whitner is one of the many dealerships owned by AutoUSA. AutoUSA has many other dealerships located in small towns throughout the United States. Reported below are the number of vehicles sold in the last 24 months at Smith Ford Mercury Jeep, Inc., in Kane, Pennsylvania, and Brophy Honda Volkswagen in Greenville, Ohio. Construct dot plots for the two small town AutoUSA lots. Summarize your findings. Smith Ford Mercury Jeep, Inc. 23 28 26

27 39 28

30 32 36

27 29 30

32 35

31 36

32 33

32 25

35 35

33 37

95

Describing Data: Displaying and Exploring Data

Brophy Honda Volkswagen

31 36 37

SOLUTION

44 34 43

30 31 42

36 32 33

37 40

34 36

43 31

38 44

37 26

35 30

The MINITAB system provides a dot plot and calculates the mean, median, maximum, and minimum values, and the standard deviation for the number of cars sold at each of the dealerships over the last 24 months.

The dot plots in the lower right of the software output shgw the distributions for each dealership. The plots display the difference in locatiori: and dispersion of the individual observations. By examining the dot plots of the distributions, we observe the central location of Brophy's sales is greater than the central location of Smith's sales. In addition, the dot plots show that the distribution of Brophy's sales is more widely dispersed than Smith's sales. Several other features of the monthly sales are apparent: o Smith sold the fewest cars in any month, 23. • Brophy sold 26 cars in their lowest month which is 4 cars less than the next lowest month. o Smith sold exactly 32 cars in four different months. • The monthly sales cluster around 32 for Smith and 36 for Brophy.

The software output also shows the descriptive statistics, the mean and standard deviation. It reports that Brophy sold a mean of 35.83 vehicles per month and Smith a mean of 31.29 per month. So Brophy sells an average of 4.54 more vehicles per month. There is also more dispersion in Brophy's sales. How do we know this? The standard deviation at Brophy (4.96 cars per month) is larger than at Smith (4.11 cars per month). The descriptive statistics agree with the broad conclusions revealed in the dot plots.

96

Chapter 4

Self-Review 4-1

The number of employees at each of the 142 Home Depot Stores in the Southeast region is shown in the following dot plot.

80

84

88

92

96

100 .

104

Number of employees (a) (b) (c)

What are the maximum and minimum numbers of.employees per stote? How many stores employ 91 people? Around what values does the number of employees per store tend to cluster?

Exercises 1.

, , ,

Consider the following chart.

;

2

3

4

, 5

, 6

7

I

a. What is this chart called? b. How many observations are in the study?

c. What are the maximum and the minimum values? What is the range? d. Around what values do the observations tend to cluster? 2.

The following chart reports the number of clocks sold each day at Shaver Clocks for the last 26 days.

, 4 a. What are the maximum and the minimum number of clocks sold in a day? What is the range?

b. What is a typical number of clocks sold?

Describing Data: Displaying and Exploring Data

97

Quartiles, Deciles, and Percentiles The standard deviation is the most widely used measure of dispersion. However, there are other ways of describing the variation or spread in a set of data. One method is to determine the location of values that divide a set of observations into equal parts. These measures include quartiles, decites, and percentiles. Ouartiles divide a set of observations into four equal parts. To explain further, think of any set of values arranged from smallest to largest. In Chapter 3 we called the middle value of a set of data arranged from smallest to largest the median. That is, 50 percent of the observations are larger than the median and 50 percent are smaller. The median is a measure of location because it pinpoints the center of the data. In a similar fashion quartiles divide a set of observations into four equal parts. The first quartile, usually labeled 0 1 , is the value below which 25 percent of the observations occur, and the third quartile, usually labeled 0 3 , is the value below which 75 percent of the observations occur. Logically, O2 is the median. The values corresponding to 0 1 , O2 , and 0 3 divide a set of data into four equal parts. 0 1 can be thought of as the "median" of the lower half of the data and 0 3 the "median" of the upper half of the data. In a similar fashion deciles divide a set of observations into 10 equal parts and percentiles into 100 equal parts. So if you found that your GPA was in the 8th decile at your university, you could conclude that 80 percent of the students had a GPA lower than yours and 20 percent had a higher GPA. A GPA in the 33rd percentile means that 33 percent of the students have a lower GPA and 67 percent have a higher GPA. Percentile scores are frequently used to report results on such national standardized tests as the SAT, ACT, GMAT (used to judge entry into many Master of Business Administration programs), and LSAT (used to judge entry into law school). To formalize the computational procedure, let Lp refer to the location of a desired percentile. So if we wanted to find the 33rd percentile we would use L33 and if we wanted the median, the 50th percentile, then L5o • The number of observations is n, so if we want to locate the median, its position is at (n + 1)/2, or we could write this as (n + 1)(P/1 00), where P is the desired percentile.

LOCATION OF A PERCENTILE

(n

P

[4-1]

+ 1) 100

An example will help to explain further.

EXAMPLE

Listed below are the commissions earned last month by a sample of 15 brokers at Sa- ( lomon Smith Barney's Oakland, California, office. Salomon Smith Barney is an investment company with offices located throughout the United States. f II,'.

$2,038 $1,758 1,940 2,311

$1,721 2,054

$1,637 2,406

$2,097 1,471

$2,047 1,460

$2,205

$1,787

$2,287

I

Locate the median, the first quartile, and the third quartile for the commissions earned.

SOLUTION

The first step is to organize the data from the smallest commission to the largest.

$1,460 $1,471 2,047 2,054

$1,637 2,097

$1,721 2,205

$1,758 2,287

$1,787 2,311

f·

It

$1,940 2,406

$2,038

I It

I r

98

Chapter 4

!

The median value is the observation in the center. The center value or L50 is located at (n + 1)(50/100), where n is the number of observations. In this case that is position number 8, found by (15 + 1)(50/100). The eighth largest commission is $2,038. So we conclude this is the median and that half the brokers earned commissions more than $2,038 and half earned less than $2,038. Recall the definition of a quartile. Quartiles divide a set of observations into four equal parts. Hence . 25 percent of the observations will be less than the first quartile. Seventy-five percent of the observations will be less than the third quartile. To locate the first quartile, we use formula (4-1), where n = 15andP = 25: L 25 = (n

P

+ 1) 100

= (15

25

+ 1) 100

= 4

and to locate the third quartile, n = 15 and P = 75: L75

= (n

P

+ 1) 100

= (15

75

+ 1) 100

= 12

Therefore, the first and third quartile values are located at positions 4 and 12. The fourth value in the ordered array is $1,721 and the twelfth is $2,205. These are the first and third quartiles, respectively. So, 25 percent of the brokers earn commissions of less than $1,721 and 75 percent earn less than $2,205. The quartiles provide information about the distribution of commissions earned by stock brokers.

In the above example the location formula yielded a whole number result. That is, we wanted to find the first quartile and there were 15 observations, so the location formula indicated we should find the fourth ordered value. What if there were 20 ob20, and we wanted to locate the first quartile? servations in the sample, that is n From the location formula (4-1): L 25 = (n

P

+ 1)100

= (20

25

+ 1)100

= 5.25

We would locate the fifth value in the ordered array and then move .25 of the distance between the fifth and sixth values and report that as the first quartile. Like the median, the quartile does not need to be one of the actual values. in the data set. To explain further, suppose a data set contained the six values: 91, 75, 61, 101, 43, and 104. We want to locate the first quartile. We order the values from smallest to largest: 43, 61, 75, 91, 101, and 104. The first quartile is located at

L25 = (n

P

+ 1)100

= (6

25

+ 1)100

= 1.75

The position formula tells us that the first quartile is located between the first and the second value and that it is .75 of the distance between the first and the second values. The first value is 43 and the second is 61. So the distance between these two values is 18. To locate the first quartile, we need to move. 75 of the distance between the first and second values, so .75(18) = 13.5. To complete the procedure, we add 13.5 to the first value and report that the first quartile is 56.5. To put it another way, the first quartile is 43 + .75 (61-43) = 56.5.

99

Describing Data: Displaying and Exploring Data

We can extend the idea to include both deciles and percentiles. If we wanted to locate the 23rd percentile in a sample of 80 observations, we would look for the 18.63 position. L23 = (n

P

+ 1)100 =

(80

23

+ 1)100

= 18.63

To find the value corresponding to the 23rd percentile, we would locate the 18th value and the 19th value and determine the distance between the two values. Next, we would multiply this difference by 0.63 and add the result to the smaller value, The result would be the 23rd percentile. With a statistical software package, it is quite easy to sort the data from smallest to largest and to locate percentiles and deciles. Both MINITAB and Excel output summary statistics. The following Excel output includes the same information regarding the mean, median, and standard deviation. It will also output the quartiles, but the method of calculation is not as precise. To find the quartiles, we multiply the sample size by the desired percentile and report the integer of that value. To explain, in the Whitner Autoplex data there are 80 observations, and we wish to locate the 25th percentile. We multiply n + 1 = 80 + 1 = 81 by .25; the result is 20.25. Excel will not allow us to enter a fractional value, so we use 20 and request the location of the largest 20 values and the smallest 20 values. The result is a good approximation of the 25th and 75th percentiles.

Elle

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Self-Review 4-2

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The quality control department of the Plainsville Peanut Company is checking the weight of the a-ounce jar of peanut butter. The weights of a sample of nine jars produced last hour are:

I 7.69 (a) (b)

7.727.80

7.86 7.90 7.94 7.97 8.06 8.09

What is the median weight? Determine the weights corresponding to the first and third quartiles.

100

Chapter 4

Exercises 3.

Determine the median and the values corresponding to the first and third quartiles in the following data.

I 46 4.

49

53

51

54

54

55

59 I

55

6.02 10.37

6.67 10.39

7.30 11.86

7.59 12.22

7.99 12.71

8.03 13.07

8.35 13.59

8.81 13.89

9.45 15.42

The Thomas Supply Company, Inc. is a distributor of small electrical motors. As with any business, the length of time customers take to pay their invoices is important. Listed below, . arranged from smallest to largest, is the time, in days, for a sample of The Thomas Supply Company, Inc. invoices. 13 41

6.

49

Determine the median and the values corresponding to the first and third quartiles in the following data. 5.24 9.61

6.

47

13 41

13 41

20 45

26 47

27 47

31 47

34 50

34 51

34 53

35 54

35 56

36 62

37 67

38 82

a. Determine the first and third quartiles. b. Determine the second decile and the eighth decile. c. Determine the 67th percentile. Kevin Horn is the national sales manager for National Textbooks, Inc. He has a sales staff of 40 who visit college professors all over the United States. Each Saturday morning he requires his sales staff to send him a report. This report includes, among other things, the number of professors visited during the previous week. Listed below, ordered from smallest to largest, are the number of visits last week. 38 59 a. b. c. d.

40 59

41 59

45 62

48 62

48 62

50 63

50 64

51 65

51 66

52 66

52 67

53 67

54 69

55 69

55 71

55 77

56 78

56 79

57 79

Determine the median number of calls. Determine the first and third quartiles. Determine the first decile and the ninth decile. Determine the 33rd percentile.

Box Plots A box plot is a graphical display, based on quartiles, that helps us picture a set of data. To construct a box plot, we need only five statistics: the minimum value, 0 1 (the first quartile), the median, 0 3 (the third quartile), and the maximum value. An example will help to explain.

EXAMPLE

Alexander's Pizza offers free delivery of its pizza within 15 miles. Alex, the owner, wants some information on the time it takes for delivery. How long does a typical delivery take? Within what range of times will most deliveries be completed? For a sample of 20 deliveries, he determined the following information: . Minimum value = 13 minutes

0 1 = 15 minutes Median = 18 minutes

101

Describing Data: Displaying and Exploring Data

0 3 = 22 minutes Maximum value = 30 minutes

Develop a box plot for the delivery times. What conclusions can you make about the delivery time::;?

SOLUTION

The first step in drawing a box plot is to create an appropriate scale along the horizontal axis. Next, we draw a box that starts at 0 1 (15 minutes) and ends at 0 3 (22 minutes). Inside the box we place a vertical line to represent the median (18 minutes). Finally, we extend horizontal lines from the box out to the minimum value (13 minutes) and the maximum value (30 minutes). These horizontal lines outside of the box are sometimes called "whiskers" because they look a bit like a cat's whiskers. Minimum value

Maximum value

Median

03

-------- -----------IJ 12

14

16

18

20

22

24

26

28

30

32 Minutes

The box plot shows that the middle 50 percent of the deliveries take between 15 minutes and 22 minutes. The distance between the ends of the box, 7 minutes, is the interquartile range. The interquartile range is the distance between the first and the third quartile. It shows the spread or dispersion of the majority of deliveries.

The box plot also reveals that the distribution of delivery times is positively skewed. How do we know this? In this case there are actually two pieces of information that suggest that the distribution is positively skewed. Recall that skewness is the lack of symmetry in a set of values. First, the dashed line to the right of the box from 22 minutes (03) to the maximum time of 30 minutes is longer than the dashed line from the left of 15 minutes (0 1) to the minimum value of 13 minutes. To put it another way, the 25 percent of the data larger than the third quartile is more spread out than the 25 percent less than the first quartile. A second indication of positive skewness is that the median is not in the center of the box. The distance from the first quartile to the median is smaller than the distance from the median to the third quartile. We know that the number of delivery times between 15 minutes and 18 minutes is the same as the number of delivery times between 18 minutes and 22 minutes.

EXAMPLE

Refer to the Whitner Autoplex data in Table 2-1. Develop a box plot of the data. What can we conclude about the distribution of the vehicle selling prices?

SOLUTION

The MINITAB statistical software system was used to develop the chart on the next page. We conclude that the median vehicle selling price is about $23,000, that about 25 percent of the vehicles sell for less than $20,000, and that about 25 percent sell for more than $26,000. About 50 percent of the vehicles sell for between $20,000 and $26,000. The distribution is somewhat positively skewed because the solid line above $26,000 is somewhat longer than the line below $20,000. There is an asterisk (*) above the $35,000 selling price. An asterisk indicates an outlier. An outlier is a value that is inconsistent with the rest of the data. The standard definition of an outlier is a value that is more than 1.5 times the interquartile range smaller than 0 1 or larger than 0 3 , In this example, an outlier would be a value larger than $35,000, found by

102

Chapter 4

Outlier> 0 3

+ 1.5(03

-

0 1)

=

$26,000 + 1.5($26,000 - $20,000)

=

$35,000

=

$11,000

A value less than $11,000 is also an outlier. Outlier < 0 1

-

1.5(03

-

0 1)

=

$20,000 - 1.5($26,000 - $20,000)

The MINITAB box plot indicates that there is only one value larger than $35,000. However, if you look at the actual data in Table 2-1 on page 25 you will notice that there are actually two values ($35,851 and $35,925). The software was not able to graph two data points so close together, so it shows only one asterisk.

Self-Review 4-3

The following box plot is given.

1-------

I

o

- - -- --- - - --I

I

I

I

I

I

I

I

I

I

I

10

20

30

40

50

60

70

80

90

100

What are the median, the largest and smallest values, and the first and third quartiles? Would you agree that the distribution is symmetric?

Exercises 7. Refer to the box plot below. 1,750 1,400 1,050 700 350

o ~------~-------

103

Describing Data: Displaying and Exploring Data

a. Estimate the median. b. Estimate the first and third quartiles. c. Determine the interquartile range. d. Beyond what point is a value considered an outlier? e. Identify any outliers and estimate their value. 1. Is the distribution symmetrical or positively or negatively skewed? 8. Refer to the following box plot.

1,500

* T

1,200

I I I I I I I

900 600 300 0

a. Estimate the median. b. Estimate the first and third quartiles. c. Determine the interquartile range. d. Beyond what point is a value considered an outlier? e. Identify any outliers and estimate their value. f. Is the distribution symmetrical or positively or negatively skewed? 9. In a study of the gasoline mileage of model year 2004 automobiles, the mean miles per galIon was 27.5 and the median was 26.8. The smallest value in the study was 12.70 miles per gallon, and the largest was 50.20. The first and third quartiles were 17.95 and 35.45 miles per gallon, respectively. Develop a box plot and comment on the distribution. Is it a symmetric distribution? 10. A sample of 28 time shares in Florida revealed the following daily charges for a onebedroom suite. For convenience the data are ordered from smallest to largest. Construct a box plot to represent the data. Comment on the distribution. Be sure to identify the first and third quartiles and the median.

$116 229 260 307

$121 232 264 309

$157 236 276 312

$192 236 281 317

$207 239 283 324

$209 243 289·· 341

$209 246 296 353

Skewness In Chapter 3 we described measures of central location for a set of observations by reporting the mean, median, and mode. We also described measures that show the amount of spread or variation in a set of data, such as the range and the standard deviation. Another characteristic of a set of data is the shape. There are four shapes commonly observed: symmetric, positively skewed, negatively skewed, and bimodal. In a symmetric set of observations the mean and median are equal and the data values are evenly spread around these values. The data values below the mean and median are a mirror image of those above. A set of values is skewed to the right or positively skewed if there is a single peak and the values extend much further to the right of the peak than to the left of the peak. In this case the mean is larger than the median. In a negatively skewed distribution there is a single peak but the observations extend fUrther to the left, in the negative direction, than to the right. In a negatively skewed distribution the mean is smaller than the median. Positively skewed distributions are more common. Salaries often follow this pattern. Think of the salaries of those

104

Chapter 4

employed in a small company of about 100 people. The president and a few top executives would have very large salaries relative to the other workers and hence the distribution of salaries would exhibit positive skewness. A bimodal distribution will have two or more peaks. This is often the case when the values are from two populations. This information is summarized in Chart 4-1.

The late Stephen Jay Gould.(1941~2002).

was a professor of zoology and professor of geology at Harvard University. In 1982, he was diagnosed with cancer and had an ell.-pected survival time of eight , months. However, never to be discouri aged, his research i-"i;lio\vedtllafHie"distribution of survival ,. time is dramatically : skewed to the right and showed that not . only do 50% ofsimilar cancer patients .sllrvive morethan 8 months, .but that the survival time could be years rather than months! Based on his experience, he wrote a widely puo.' lished essay titled, "The Median is not the Message."

Symmetric

Positively Skewed

Ages

Monthly Salaries

Negatively Skewed

Bimodal

Test Scores

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CHART 4-1 Shapes of Frequency Polygons There are several formulas in the statistical literature used to calculate skewness. The simplest, developed by Professor Karl Pearson, is based on the difference between the mean and the median.

PEARSON'S COEFFICIENT OF SKEWNESS

sk

=

3(X - Median)

s

[4-2]

Using this relationship the coefficient of skewness can range from -3 up to 3. A value near -3, such as -2.57, indicates considerable negative skewness. A value such as 1.63 indicates moderate positive skewness. A value of 0, which will occur when the mean and median are equal, indicates the distribution is symmetrical and that there is no skewness present. In this text we present output from the statistical software packages MINITAB and Excel. Both of these software packages compute a value for the coefficient of skewness that is based on the cubed deviations from the mean. The formula is:

SOFTWARE COEFFICIENT OF SKEWNESS

[4-3]

Formula (4-3) offers an insight into skewness. The right-hand side of the formula is the difference between each value and the mean, divided by the standard deviation. That is the portion (X - X)/s of the formula. This idea is called standardizing. We will discuss the idea of standardizing a value in more detail in Chapter 7 when we describe the normal probability distribution. At this point, observe that the result is to report the difference between each value and the mean in units of the standard deviation. If this difference is positive, the particular value is larger than the mean; if it is negative, it is smaller than the mean. When we cube these values, we retain the information on the direction of the difference. Recall that in the formula for the standard deviation [see formula (3-11)] we squared the difference between each value and the mean, so that the result was all non-negative values.

105

Describing Data: Displaying and Exploring Data

If the set of data values under consideration is symmetric, when we cube the standardized values and sum over all the values the result would be near zero. If there are several large values, clearly separate from the others, the sum of the cubed differences would be a large positive value. Several values much smaller will result in a negative cubed sum. An example will illustrate the idea of skewness.

EXAMPLE

Following are the earnings per share for a sample of 15 software companies for the year 2005. The earnings per share are arranged from smallest to largest. $0.09 3.50

$0.13 6.36

$0.41 7.83

$0.51 8.92

$ 1.12 10.13

$ 1.20 12.99

$ 1.49 16.40

$3.18

Compute the mean, median, and standard deviation. Find the coefficient of skewness using Pearson's estimate and the software methods. What is your conclusion regarding the shape of the distribution?

SOLUTION

These are sample data, so we use formula (3-2) to determine the mean

X= ~ =

26 $7;5

= $4.95

The median is the middle value in a set of data, arranged from smallest to largest. In this case the middle value is $3.18, so the median earnings per share is $3.18. We use formula (3-11) on page 80 to determine the sample standard deviation. S I

=

2;(X -'- X) 2 1

n~

= ~($0.09 -

$4.95)2

+ ... + ($16.40 - $4.95)2 = $5.22 15 - 1

Pearson's coefficient of skewness is 1.017, found by

sk

= 3(X - Median) = 3($4.95 - $3.18) = 1 017

s

.

$5.22

.

This indicates there is moderate positive skewness in the earnings per share data. We obtain a similar, but not exactly the same, value from the software method. The details of the calculations are shown in Table 4-1. To begin we find the difference between each earnings per share value and the mean and divide this result by the standard deviation. Recall that we referred to this as standardizing. Next, we cube, that is, raise it to the third power, the result of the first step. Finally, we sum the cubed values. The details of the first row, that is, the company with an earnings per share of $0.09, are:

(X ~ xy = (0.095~24.95y = (-0.9310)3 = -0.8070 When we sum the 15 cubed values, the result is 11.8274. That is, the term 2;[(X - X)/S]3 11.8274. To find the coefficient of skewness, we use formula (4-3), with n = 15. .

,,(X -

n X)3 15 sk = (n - 1)(n - 2) kt - s - = (15 - 1)(15 _ 2)(11.8274) = 0.975 We conclude that the earnings per share values are somewhat positively skewed. The chart on the next page, from MINITAB, reports the descriptive measures, such as the mean, median, and standard deviation of the earnings per share data. Also included are the coefficient of skewness and a histogram with a bell-shaped curve superimposed.

106

Chapter 4

TABLE 4-1 Calculation of the Coefficient of Skewness

(X-X) Earnings per Share

s

0.09 0.13 0.41 0.51 1.12 1.20 1.49 3.18 3.50 6.36 7.83 8.92 10.13 12.99 16.40

-0.9310 -0.9234 -0.8697 -0.8506 -0.7337 -0.7184 -0.6628 -0.3391 -0.2778 0.2701 0.5517 0.7605 0.9923 1.5402 2.1935

--

((X ~ X»)3 -0.8070 -0.7873 -0.6579 -0.6154 -0.3950 -0.3708 -0.2912 -0.0390 -0.0214 0.0197 0.1679 0.4399 0.9772 3.6539 10.5537

--11.8274

Self-Review 4-4

A sample of five data entry clerks employed in the Horry County Tax Office revised the following number of tax records last hour: 73, 98, 60, 92, and 84. (a) (b) (c) (d)

Find the mean, median, and the standard deviation. Compute the coefficient of skewness using Pearson's method. Calculate the coefficient of skewness using the software method. What is your conclusion regarding the skewness of the data?

Describing Data: Displaying and Exploring Data

107

Exercises For Exercises 11-14, do the following: a. Determine the mean, median, and the standard deviation. b. Determine the coefficient of skewness using Pearson's method. c. Determine the coefficient of skewness using the software method. 11. The following values are the starting salaries, in $000, for a sample of five accounting graduates who accepted positions in public accounting last year.

I 36.0

26.0

33.0

28.0

31.0

I

12. Listed below are the salaries, in $000, for a sample of 15 chief financial officers in the electronics industry.

$516.0 546.0 486.0

$548.0 523.0 558.0

$566.0 538.0 574.0

$534.0 523.0

$529.0 552.0

$586.0 551.0

13. Listed below are the commissions earned ($000) last year by the sales representatives at the Furniture Patch, Inc.

$ 3.9

$ 5.7

$ 7.3

17.4

17.6

22.3

$10.6 38.6

$13.0 43.2

$13.6 87.7

$15.1

$15.8

$17.1

14. Listed below are the salaries for the New York Yankees for the year 2004. The salary information is reported in millions of dollars.

21.7 18.6 8.5 7.0 1.0 0.9

16.0 6.0 0.8

15.7 3.5 0.8

12.4 3.0 0.7

12.4 3.0 0.5

12.0 2.7 0.5

10.9 2.0 0.3

9.0 1.9 0.3

9.0 1.8

Describing the Relationship Between Two Variables In Chapter 2 and the first section of this chapter we presented graphical techniques to summarize the distribution of a single variable. We used a histogram in Chapter 2 to summarize the prices of vehicles sold at Whitner Autoplex. Earlier in this chapter we used dot plots to visually summarize a set of data. Because we are studying a single variable we refer to this as univariate data. There are situations where we wish to study and visually portray the relationship between two variables. When two variables are measured for each individual or observation in the population or sample, the data are called bivariate data. Data analysts frequently wish to understand the relationship between two variables. Here are some examples: • Tybo and Associates is a law firm that advertises extensively on local TV. The partners are considering increasing their advertising budget. Before doing so, they would like to know the relationship between the amount spent per month on

108

Chapter 4

advertising and the total amount of billings. To put it another way, will increasing the amount spent on advertising result in an increase in billings? • Coastal Realty is studying the selling prices of homes. What variables seem to be related to the selling price of homes? For example, do larger homes sell for more than smaller ones? Probably. So Coastal might study the relationship between the area in square feet and the selling price. • Dr. Stephen Givens is an expert in human development. He is studying the relationship between the height of fathers and the height of their sons. That is, do tall fathers tend to have tall children? Would you expect Shaquille O'Neal, the 7'1", 335-pound professional basketball player, to have relatively tall sons? One graphical technique we use to show the relationship between variables is called a scatter diagram. To draw a scatter diagram we need two variables. We scale one variable along the horizontal axis (X-axis) of a graph and the other variable along the vertical axis (Y-axis). Usually one variable depends to some degree on the other. In the third example above, the height of the son depends on the height of the father. So we scale the height of the father on the horizontal axis and that of the son on the vertical axis. We can use statistical software, such as Excel, to perform the plotting function for us. Caution: you should always be careful of the scale. Remember the example on page 17 (Chart 1-5). By changing the scale of either the vertical or the horizontal axis, you can affect the apparent visual strength of the relationship.

EXAMPLE

In the Introduction to Chapter 2 we presented data from AutoUSA. In this case the information concerned the prices of 80 vehicles sold last month at the Whitner Autoplex lot in Raytown, Missouri. The data shown below include the selling price of the vehicle as well as the age of the purchaser. Is there a relationship between the selling price of a vehicle and the age of the purchaser? Would it be reasonable to conclude that the more expensive vehicles are purchased by older buyers?

SOLUTION

We can investigate the relationship between vehicle selling price and the age of the i buyer with a scatter diagram. We scale age on the horizontal, or X-axis, and the seiling price on the vertical, or Y-axis. We use Microsoft Excel to develop the scatter diagram. The Excel commands necessary for the output are shown in the Software Commands section at the end of the chapter.

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109

Describing Data: Displaying and Exploring Data

The scatter diagram shows a positive relationship between the variables. In fact, older buyers tend to buy more expensive cars. In Chapter 13 we will study the relationship between variables more extensively, even calculating several numerical measures to express the relationship. In the Whitner Autoplex example there is a positive or direct relationship between the variables. That is, as age increased the vehicle selling price also increased. There are, however, many instances where there is a relationship between the variables, but that relationship is inverse or negative. For example: • The value of a vehicle and the number of miles driven. As the number of miles increases, the value of the vehicle decreases. • The premium for auto insurance and the age of the driver. Auto rates tend to be the highest for young adults and less for older people. • For many law enforcement personnel as the number of years on the job increases the number of traffic citations decreases. This may be because personnel become more liberal in their interpretations or they may be in supervisor positions and not in a position to issue as many citations. But in any event as age increases the number of citations decreases.

A scatter diagram requires that both of the variables be at least interval scale. In the Whitner Autoplex example both age and selling price are ratio scale variables. Height is also ratio scale as used in the discussion of the relationship between the height of fathers and the height of their sons. What if we wish to study the relationship between two variables when one or both are nominal or ordinal scale? In this case we tally the results into a contingency table.

CONTINGENCY TABLE A table used to classify observations according to two identifiable characteristics. A contingency table is a cross tabulation of two variables. It is a two dimensional frequency distribution in which the classes for one variable are presented on the rows and the classes for the other variable are presented on the columns. For example: • Students at a university are classified by gender and class rank. • A product is classified as acceptable or unacceptable and by the shift (day, afternoon, or night) on which it is manufactured. . • A voter in a school bond referendum is classified as to party affiliation (Democrat, Republican, other) and the number of children attending school in the district (0, 1, 2, etc.).

EXAMPLE

A manufacturer of preassembled windows produced 50 windows yesterday. This morning the quality assurance inspector reviewed each window for all quality aspects. Each was classified as acceptable or unacceptable and by the shift on which it was produced. Thus he reported two variables on a single item. The two variables are shift and quality. The results are reported in the following table. Shift Defective Acceptable Total

Day

Afternoon

Night

Total

3 17 20

2 13 15

1 14 15

44 50

6

llO

Chapter 4

Compare the quality levels on each shift.

SOLUTION

Self-Review 4-5

The level of measurement for both variables is nominal. That is, the variables' shift and quality are such that a particular unit can only be classified or assigned into groups. By organizing the information into a contingency table we can compare the quality on the three shifts. For example, on the day shift, 3 out of 20 windows or 15 percent are defective. On the afternoon shift, 2 of 15 or 13 percent are defective and on the night shift 1 out of 15 or 7 percent are defective. Overall 12 percent of the windows are defective. Observe also that 40 percent of the windows are produced on the day shift, found by (20/50)(100). We will return to the study of contingency tables in Chapter 5 during the study of probability and in Chapter 15 during the study of nonparametric methods of analysis.

The following chart shows the relationship between concert seating capacity (00) and revenue in $000 for a sample of concerts.

8

7

s0

6-

~

5 -

0

1: :::s 0

~

4

3

..

2-

•

•

• •• •

63 68 Seating Capacity (00)

58 (a) (b) (c) (d)

• • ••

.•

..

73

What is the above diagram called? How many concerts were studied? Estimate the revenue for the concert with the largest seating capacity. How would you characterize the relationship between revenue and seating capacity? Is it strong or weak, direct or inverse?

Exercises 15. Develop a scatter diagram for the following sample data. How would you describe the relationship between the values?

X-Value

Y-Value

10 8

6 2 6 5 7 6 5 2 3 7

9

11 13 11 10 7 7 11

III

Describing Data: Displaying and Exploring Data

16. Silver Springs Moving and Storage, Inc. is studying the relationship between the number of rooms in a move and the number of labor hours required. As part of the analysis the CFO of Silver Springs developed the following scatter diagram. 40

•

30 I'!: ::I 0

20

.,

10

.. ..

::t:

0

..

•

• .. ..• •• •

..

I

3 Rooms

2

..

I

I

4

5

a. How many moves are in the sample? b.. Does It appear that more labor hours are required as the number of rooms increases, or does labor hours decrease as the number of rooms increases? 17. The manager of a restaurant wishes to study the relationship between the gender of a guest and whether the guest orders dessert. To investigate the relationship the manager collected the following information on 200 recent customers. .

Gender Dessert Ordered

Male

Female

Total

Yes No

32 68

15 85

47 153

Total

100

100

200

a. What is the level of measurement of the two variables? b. What is the above table called? c. Does the evidence in the table suggest men are more likely to order dessert than women? Explain why. 18. A corporation is evaluating a proposed llJerger. The Board of Directors surveyed 50 stockholders concerning their position on the merger. The results are reported below.

Opinion Number of Shares Held

Favor

Opposed

Undecided

Total

Under 200 200 to 1,000 1,000 or more

8 6 6

6 8 12

2 1 1

16 15 19

20

26

4

50

Total

a. What level of measurement is used in this table? b. What is this table called? c. What group seems most strongly opposed to the merger?

-

112

Chapter 4

Chapter Outline I. A dot plot shows the range of values on the horizontal axis and a dot is placed above each of the values. A. Dot plots report the details of each observation. B. They are useful for comparing two or more data sets. II. Measures of location also describe the shape of a set of observations. A. Quartiles divide a set of observations into four equal parts. 1. Twenty-five percent of the observations are less than the first quartile, 50 percent are less than the second quartile, and 75 percent are less than the third quartile. 2. The interquartile range is the difference between the third and the first quartile. B. Deciles divide a set of observations in ten equal parts and percentiles into 100 equal parts. C. A box plot is a graphic display of a set of data. 1. A box is drawn enclosing the regions between the first and third quartiles. a. A line is drawn inside the box at the median value. b. Dotted line segments are drawn from the third quartile to the largest value to show the highest 25 percent of the values and from the first quartile to the smallest value to show the lowest 25 percent of the values. 2. A box plot is based on five statistics: the maximum and minimum observations, the first and third quartiles, and the median. III. The coefficient of skewness is a measure of the symmetry of a distribution. A. There are two formulas for the coefficient of skewness. 1. The formula developed by Pearson is:

sk

=

3(X - Median)

[4-2]

s 2. The coefficient of skewness computed by statistical software is:

sk

~n _ 2) [ ~(X ~ XYJ

[4-3]

(n _ 1

IV. A scatter diagram is a graphic tool to portray the relationship between two variables. A. Both variables are measured with interval or ratio scales. B. If the scatter of points moves from the lower left to the upper right the variables under consideration are directly or positively related.

C. If the scatter of points moves from upper left to the lower right the variables are inversely or negatively related.

V. A contingency table is used to classify nominal scale observations according to two characteristics.

Pronunciation Key MEANING

PRONUNCIATION

Location of percentile

L subp

First quartile

Q sub 1

Third quartile

Qsub3

Chapter Exercises 19. A sample of students attending Southeast Florida University is asked the number of social activities in which they participated last week. The chart below was prepared from the sample data.

, i

o

, •

, i

,

,

2 Activities

3

4

113

Describing Data: Displaying and Exploring Data

a. What is the name given to this chart? b. How many students were in the study?

c. How many students reported attending no social activities? 20. Doctor's Care is a walk-in clinic, with locations in Georgetown, Monks Corners, and Aynor, at which patients may receive treatment for minor injuries, colds, and flu, as well as physIcal examinations. The following charts report the number of patients treated in each of the three locations last month.

Location

.~--='------.--------..-

Georgetown --""="-I_ _..,.8_=IIt_--=d=-Ir"I=II=IIID"-= • .."d"",-"I,...,,.J=--,I.=-'1

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10

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20

30

40

50

Patients Describe the number of patients served at the three locations each day. What are the maximum and minimum numbers of patients served at each of the locations? What comparisons would you make. among the three locations? 21. In the early 2000s interest rates were low so many homeowners refinanced their home mortgages. Linda Lahey is a mortgage officer at Down River Federal Savings and Loan. Below is the amount refinanced for twenty loans she processed last week. The data are reported in thousands of dollars and arranged from smallest to largest.

59.2 83.7 100.2

59.5 85.6 100.7

61.6 85.8

66.6 87.0

65.5 86.6

72.9 87.1

74.8 90.2

77.3

93.3

79.2 98.6

a. Find the median, first quartile, and third quartile. b. Find the 26th and 83rd percentiles.

c. Draw a box plot of the data. 22. A study is made by the recording industry in the United States of the number of music CDs owned by senior citizens and young adults. The information is reported below.

Seniors

28 118 177

35 132 180

41 133 180

48 140 187

52 145 188

81 147

97 153

98 158

98 162

99 174

175 183 284 284 518 .550

192 316 557

202 372 590

209 401 594

Young Adults

81 233 417

107 251 423

113 254 490

147 266 500

147 283 507

a. Find the median and the first and third quartiles for the number of CDs owned by senior citizens. Develop a box plot for the information. b. Find the median and the first and third quartiles for the number of CDs owned by young adults. Develop a box plot for the information. c. Compare the number of CDs owned by the two groups. 23. The corporate headquarters of Bank.com, a new Internet company that performs all banking transactions via the Internet, is located in downtown Philadelphia. The director of human resources is making a study of the time it takes employees to get to work. The city is planning to offer incentives to each downtown employer if they will encourage their

114

Chapter 4

employees to use public transportation. Below is a listing of the time to get to work this morning according to whether the employee used public transportation or drove a car.

Public Transportation

23

25

25

30

31

31

32

33

35

36

37

42

38

38

39

40

44

Private

132

32

33

34

37

37

38

a. Find the median and the first and third quartiles for the time it took employees using public transportation. Develop a box plot for the information.

b. Find the median and the first and third quartiles for the time it took employees who drove their own vehicle. Develop a box plot for the information.

c. Compare the times of the two groups. 24. The following box plot shows the number of daily newspapers published in each state and the District of Columbia. Write a brief report summarizing the number published. Be sure to include information on the values of·the first and third quartiles, the median, and whether there is any skewness. If there are any outliers, estimate their value.

--------1

o

o

** **

o

co

o

o

co

Number of newspapers

25. The Walter Gogel Company is an industrial supplier of fasteners, tools, and springs. The amounts of their invoices vary widely, from less than $20.00 to over $400.00. During the month of January they sent out 80 invoices. Here is a box plot of these invoices. Write a brief report summarizing the amounts of their invoices. Be sure to include information on the values of the first and third quartiles, the median, and whether there is any skewness. If there are any outliers, approximate the value of these invoices.

---------1

o

0

t.n

a

*

o

0

t.n

0

t.n

N

Invoice amount

26. The National Muffler Company claims they will change your muffler in less than 30 minutes. An investigative reporter for WTOL Channel 11 monitored 30 consecutive muffler changes at the National outlet on Liberty Street. The number of minutes to perform changes is reported below.

44 40 16

12 17 33

22 13 24

31 14 20

26 17 29

22 25 34

30 29 23

26 15 13

a. Develop a box plot for the time to change a muffler. b. Does the distribution show any outliers?

c. Summarize your findings in a brief report.

18 30

28 10

12 28

115

Describing Data: Displaying and Exploring Data

27. A major airline wanted some information on those enrolled in their "frequent flyer" program. A sample of 48 members resulted in the following number of miles flown last year, to the nearest 1,000 miles, by each participant. 22 45 56 69

29 45 57 70

32 46 58 70

38 46 59 70

39 46 60 71

42 50 61

41 47 61 71

43 51 63 73

72

43 52 63 74

43 54 64 76

44 55 67 88

44 54 64 78

a. Develop a box plot for the information. b. Does the distribution show any outliers?

c. Summarize your findings in a brief report. 28. Listed below is the amount of commissions earned last month for the eight members of the sales staff at Best Electronics. Calculate the coefficient of skewness using both methods. Hint: Use of a spreadsheet will expedite the calculations. 980.9

1036.5

1099.5

1153.9

1409.0

1456.4

1718.4

1721.2

29. Listed below is the number of car thefts per day in a large city over the last week. Calculate the coefficient of skewness using both methods. Hint: Use of a spreadsheet will expedite the calculations.

~

13

12

7

8

8[

3

30. The manager of Information Services at Wilkin Investigations, a private investigation firm, is studying the relationship between the age (in months) of a combination printer, copy, and fax machine and its monthly maintenance cost. For a sample of 15 machines the manager developed the following chart. What can the manager conclude about the relationship between the variables? 130 fit fit

120

..

110 "t) 0 c:..:>

100 90

CD

.

..

fit

•

••

• • • CD

CD

80 34

39

44

48

Months 31. An auto insurance company reported the following information regarding the age of a driver and the number of accidents reported last year. Develop a scatter diagram for the data and write a brief summary.

Age

Accidents

16 24 18 17 23 27 32 22

4 2 5 4 0 1 3

116

Chapter 4

32. Wendy's Old Fashion Hamburgers offers eight different condiments (mustard, catsup, onion, mayonnaise, pickle, lettuce, tomato, and relish) on hamburgers. A store manager collected the following information on the number of condiments ordered and the age group of the customer. What can you conclude regarding the information? Who tends to order the most or least number of condiments?

Age Number of Condiments

Under 18

18upt040

40 up to 60

60 or older

0 1 2 3 or more

12 21 39 71

18 76 52 87

24 50 40 47

52 30 12 28

33. A nationwide poll of adults asked if they favor gun control, oppose it, or have no opinion, as well as their preferred political party. The results are reported in the following table.

Opinion on Gun Control Party Affiliation

Democrat Republican Total

Favor

Oppose

No Opinion

Total

88 64

96 96

36 20

220 180

56

400

-

152

-

192

-

-

Analyze the information in the table. Who is more likely to favor gun control?

• exerCIses. com 34. Refer to Exercise 72 on page 89, which suggests websites to find information on the Dow Jones Industrial Average. One of the websites suggested is Bloomberg, which is an excellent source of business data. The Bloomberg website is: http://bloomberg.com.Cllck on Markets on the tool bar select and then select Stocks in the Dow. You should now have available a listing of the current selling price of the 30 stocks that make up the Dow Jones Industrial Average. Find the percent change from yesterday for each of the 30 stocks. Develop charts to depict the percent change. 35. The following website gives the Super Bowl results since the game was first played in 1967: http://www.superbowl.com/history/recaps. Download the scores for each Super Bowl and determine the winning margin. What was the typical margin? What are the first and third quartiles? Are there any games that were outliers?

Dataset Exercises 36. Refer to the Real Estate Data, which reports information on homes sold in the Denver, Colorado, area last year. Select the variable selling price. a. Develop a box plot. Estimate the first and the third quartiles. Are there any outliers? b. Develop a scatter diagram with price on the vertical axis and the size of the home on the horizontal. Does there seem to be a relationship between these variables? Is the relationship direct or inverse? c. Develop a scatter diagram with price on the vertical axis and distance from the center of the city on the horizontal axis. Does there seem to be a relationship between these variables? Is the relationship direct or Inverse? 37. Refer to the Baseball 2003 data, which reports information on the 30 major league baseball teams for the 2003 season. a. Select the variable that refers to the year in which the stadium was built. (Hint: Subtract the year in which the stadium was built from the current year to find the age of the stadium and work with this variable.) Develop a box plot. Are there any outliers?

117

Describing Data: Displaying and Exploring Data

b. Select the variable team salary and draw a box plot. Are there any outliers? What are the quartiles? Write a brief summary of your analysis. How do the salaries of the New York Yankees and the Montreal Expos compare with the other teams? c. Draw a scatter diagram with the number of games won on the vertical axis and the team salary on the horizontal axis. What are your conclusions? d. SelecUhe variable wins. Draw a dot plot. What can you conclude from this plot? 38. Refer to the Wage data, which reports information on annual wages for a sample of 100 workers. Also included are variables relating to industry, years of education, and gender for each worker. Draw a bar chart of the variable occupation. Write a brief report summarizing your findings. 39. Refer to the CIA data, which reports demographic and economic information on 46 countries. a. Select the variable life expectancy. Develop a box plot. Find the first and third quartiles. Are there any outliers? Is the distribution skewed or symmetric? Write a paragraph summarizing your findings. b. Select the variable GDP/cap. Develop a box plot. Find the first and third quartiles. Are there any outliers? Is the distribution skewed or symmetric? Write a paragraph summarizing your findings.

Software Commands 1. The MINITAB commands for the dot plot on page 95 are: a. Enter the vehicles sold at Smith Ford Mercury Jeep in column C1 and Brophy Honda Volkswagen in C2. Name the variables accordingly. b. Select Graph and Dot Plot. In the first dialog box select Simple in the upper left corner and click OK. In the next dialog box select Smith and Brophy as the variables to Graph, click on Labels and write an appropriate title, click on Multiple Graphs, select Options and select the option In separate panels on the same page and click OK in the various dialog boxes. c. To calculate the descriptive statistics shown in the output select Stat, Basic statistics, and then Display Descriptive statistics. In the dialog box select Smith and Brophy as the Variables, click on Statistics and select the desired statistics to be output, and finally click OK twice. 2. The Excel Commands for the descriptive statistics on page 99 are: a. From the CD retrieve the Whitner Autoplex data file, which is Whitner-Data. b. From the menu bar select Tools, and the Data Analysis. Select Descriptive Statistics and then click OK. c. For the Input Range, type 81 :881, indicate that the data are grouped by column and that the labels are in the first row. Click on Output Range, indicate that the output should go into 01 (or any place you wish), click on Summary Statistics, then click OK. d. In the lower left click on Kth Largest and put 20 in the box and click on Kth Smallest and put 20 in that box. e. After you get your results, double-check the count in the output to be sure it contains the correct number of values.

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118

Chapter 4

3. The MINITAB commands for the box plot on page 102 are: a. Import the data from the CD. The file name is Table2-1. b. Select Graph and then Boxplot. In the dialog box select Simple in the upper left corner and click OK. Select Price as the Graph variable, click on Labels and include an appropriate heading, and then click OK. 4. The MINITAB commands for the descriptive summary on page 106 are: . a. Retrieve the data from Table4-1 on the CD. b. Select Stat, Basic Statistics, and then click on Graphical Summary. Select Earnings as the variable, and then click OK. 5. The Excel commands for the scatter diagram on page 108 are: a. Retrieve the data from Table2-1 on the CD. b. You will need to copy the variables to other columns on the spreadsheet with age in a column and price in the next column. This will allow you to place price on the vertical axis and age on the horizontal axis. c. Click on Chart Wizard, select XY (Scatter) and the sub-type in the top left, and then click on next.

IWhitner AUloptcxVehic!e Selling Price (soooJ

Footnote 1: Foolnole2:

d. Select or highlight the variables age followed by price.

e. Type in a title for the chart and a name for the two variables. In the final dialog box select a location for the charts.

119

Describing Data: Displaying and Exploring Data

Chapter 4 Answers to Self-Review 4-1

a. 79, 105

c. (X-

b. 15 c. Between 89 and 91 accounts for 38 stores and 93 and 95 for 34 stores.

4-2

4-3

4-4

a. 7.9 b. 0 1 = 7.76,03 = 8.015 The smallest value is 10 and the largest 85; the first quartile is 25 and the third 60. About 50 percent of the values are between 25 and 60. The median value is 40. The distribution is positively skewed. -

a. X =

s b. sk

=

=

407 5

= -0.51

73 98 60 92 84

-0.5530 1.0928 -1.4088 0.6978 0.1712

[(X ~ X) J3 -0.1691 1.3051 -2.7962 0.3398 0.0050

5 sk = (4)(3) [-1.3154] = -0.5481

= 15.19

3(81.4 - 84.0) 15.19

5

-1.3154

= 81.4, Median = 84

J~2~.~

X)

X

d. The distribution is somewhat negatively 4-5

a. b. c. d.

skewed. Scatter diagram 16 $7,500 Strong and direct

5

A Survey of

Probability GOALS

Concepts

When you have completed this chapter you will be able to:

I

Define probability.

Describe the classical, empirical, and subjective approaches to probability.

2

Understand the terms experiment, event, outcome, permutations, and combinations.

3

Define the terms conditional probability and joint probability.

4

Calculate probabilities using the rules of addition and rules of multiplication.

5

Use a tree diagram to organize and compute probabilities.

6

Several years ago Wendy's Hamburgers advertised that there are 256 different ways to order your hamburger. You may choose to have, or omit, any combination of the following on your hamburger: mustard, ketchup, onion, pickle, tomato, relish, mayonnaise, and lettuce. Is the advertising correct? (See Goal 3 and Exercise 65.)

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Introduction The emphasis in Chapters 2, 3, and 4 is on descriptive statistics. In Chapter 2 we organize the prices of 80 vehicles sold last month at the Whitner Autoplex location of Auto USA into a frequency distribution. This frequency distribution shows the lowest and the highest selling prices and where the largest concentration of data occurs. In Chapter 3 we use measures of location and dispersion to locate typical selling price and to examine the spread in the data. We describe the spread in the selling prices with measures of dispersion such as the range and the standard deviation. In Chapter 4 we develop charts and graphs, such as a scatter diagram, to further describe the data. Descriptive statistics is concerned with summarizing data collected from past events. For example, we described the vehicle selling prices last month at Whitner Autoplex. We now turn to the second facet of statistics, namely, computing the chance that something will occur in the future. This facet of statistics is called statistical inference or inferential statistics. Seldom does a decision maker have complete information from which to make a decision. For example:

a

• Toys and Things, a toy and puzzle manufacturer, recently developed a new game based on sports trivia. They want to know whether sports buffs will purchase the game. "Slam Dunk" and "Home Run" are two of the names under consideration. One way to minimize the risk of making a wrong decision is to hire a market research firm to take a sample of, say, 2,000 consumers from the population and ask each respondent for a reaction to the new game and its proposed titles. Using the sample results the company can estimate the proportion of the population that will purchase the game. • The quality assurance department of a Bethlehem Steel mill must assure management that the quarter-inch wire being produced has an acceptable tensile strength. Obviously, not all the wire produced can be tested for tensile strength because testing requires the wire to be stretched until it breaks-thus destroying it. So a random sample of 10 pieces is selected and tested. Based on the test results, all the wire produced is deemed to be either satisfaCtory or unsatisfactory. • Other questions involving uncertainty are: Should the daytime drama Days of Our Lives be discontin.~ed immediately? Will a newly developed mint-flavored cereal be profitable if marketed? Will Charles linden be elected to county auditor in Batavia County? Statistical inference deals with conclusions about a population based on a sample taken from that population. (The populations for the preceding illustrations are: all consumers who like sports trivia games, all the quarter-inch steel wire produced, all television viewers who watch soaps, all who purchase breakfast cereal, and so on.) Because there is uncertainty in decision making, it is important that all the known risks involved be scientifically evaluated. Helpful in this evaluation is probability theory, which has often been referred to as the science of uncertainty. The use of probability theory allows the decision maker with only limited information to analyze the risks and minimize the gamble inherent, for example, in marketing a new product or accepting an incoming shipment possibly containing defective parts. Because probability concepts are so important in the field of statistical inference (to be discussed starting with Chapter 8), this chapter introduces the basic language of probability, including such terms as experiment, event, subjective probability, and addition and multiplication rules.

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What Is a Probability? No doubt you are familiar with terms such as probability, chance, and likelihood. They are often used interchangeably. The weather forecaster announces that there is a 70 percent chance of rain for Super Bowl Sunday. Based on a survey of consumers who tested a newly developed pickle with a banana taste, the probability is .03 that, if marketed, it will be a financial success. ([his means that the chance of the banana-flavor pickle being accepted by the public is rather remote.) What is a probability? In general, it is a number that describes the chance that something will happen.

PROBABILITY A value between zero and one, inclusive, describing the relative possibility (chance or likelihood) an event will occur. A probability is frequently expressed as a decimal, such as .70, .27, or .50. However, it may be given as a fraction such as 7/10, 27/100, or· 1/2. It can assume any number from 0 to 1, inclusive. If a company has only five sales regions, and each region's name or number is written on a slip of paper and the slips put in a hat, the probability of selecting one of the 'five regions is 1. The probability of selecting from the hat a slip of paper that reads "Pittsburgh Steelers" is O. Thus, the probability of 1 represents something that is certain to happen, and the probability of 0 represents something that cannot happen. The closer a probability is to 0, the more improbable it is the event will happen. The closer the probability is to 1, the more sure we are it will happen. The relationship is shown in the following diagram along with a few of our personal beliefs. You might, however, select a different probability for Sio Poke's chances to win the Kentucky Derby or for an increase in federal taxes.

Sure to . happen

Cannot happen

0.00

t

Probability our sun will disappear this year

0.20

t

Chance Sio Poke will win the Kentucky Derby

Single toss of a coin

of an increase in federal taxes

rain in Florida this year

Three key words are used in the study of probability: experiment, outcome, and event. These terms are used in our everyday language, but in statistics they have specific meanings.

EXPERIMENT A process that leads to the occurrence of one and only one of several possible observations. This definition is more general than the one used in the physical sciences, where we picture someone manipulating test tubes or microscopes. In reference to probability, an experiment has two or more possible results, and it is uncertain which will occur.

OUTCOME A particular result of an experiment.

A Survey of Probability Concepts

123

For example, the tossing of a coin is an experiment. You may observe the toss of the coin, but you are unsure whether it will come up "heads" or "tails." Similarly, asking 500 college students whether they would purchase a new Dell computer system at a particular price is an experiment. If the coin is tossed, one particular outcome is a "head." The alternative outcome is a "tail." In the computer purchasing experiment, one possible outcome is that 273 students indicate they would purchase the computer. Another outcome is that 317 students would purchase the computer. Still another outcome is that 423 students indicate that they would purchase it. When one or more of the experiment's outcomes are observed, we call this an event. EVENT A collection of one or more outcomes of an experiment. Examples to clarify the definitions of the terms experiment, outcome, and event are presented in the following figure. In the die-rolling experiment there are six possible outcomes, but there are many possible events. When counting the number of members of the board of directors for Fortune 500 companies over 60 years of age, the number of possible outcomes can be anywhere from zero to the total number of members. There are an even larger number of possible events in this experiment.

~

U

0

Experiment

Roll a die

Count the number of members of the board of directors for Fortune 500 companies who are over 60 years of age

All possible outcomes

Observe a 1

None are over 60

Observe a 2

One is over 60

Observe a3

Two are over 60

Observe a4

...

Observe a5

29 are over 60

Observe a6

... ... 48 are over 60

... Some possible events

Self-Review 5-1

Observe an even number Observe a number greater than 4 Observe a number 3 or less

More than 13 are over 60 Fewer than 20 are over 60

Video Games, Inc. recently developed a new video game. Its market potential is to be tested by 80 veteran game players. (a) (b) (c) (d) (e)

What is the experiment? What is one possible outcome? Suppose 65 players tried the new game and said they liked it. Is 65 a probability? The probability that the new game will be a success is computed to be -1.0. Comment. Specify one possible event.

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Approaches to Assigning Probabilities Two approaches to assigning probabilities will be discussed, namely, the objective and the supjective viewpoints. Objective probability is subdivided into (1) classical probability and (2) empirical probability.

Classical Probability Classical probability is based on the assumption that the outcomes of an experiment are equally likely. Using the classical viewpoint, the probability of an event happening is computed by dividing the number of favorable outcomes by the number of possible outcomes:

DEFINITION OF CLASSICAL PROBABILITY

Probability _ Number of favorable outcomes of an event - Total number of possible outcomes

[5-1]

EXAMPLE

Consider an experiment of rolling a six-sided die. What is the probability of the event "an even number of spots appear face up"?

SOLUTION

The possible outcomes are:

a one-spot a two-spot a three-spot

G U (5)

a four-spot a five-spot a six-spot

U •• ~ ••

r;; •••

There are three "favorable" outcomes (a two, a four, and a six) in the .collection of six equally likely possible outcomes. Therefore: Probability of an even number =

~6

,------------------------,

f-f--

Number of favorable outcomes Total number of possible outcomes

=.5

The mutually exclusive concept appeared earlier in our study of frequency distributions in Chapter 2. Recall that we create classes so that a particular event is included in only one of the classes and there is no overlap between classes. Thus, only one of several events can occur at a particular time.

MUTUAllY EXCLUSIVE The occurrence of one event means that none of the other events can occur at the same time. The variable "gender" presents mutually exclusive outcomes, male and female. An employee selected at random is either male or female but cannot be both. A manufactured part is acceptable or unacceptable. The part cannot be both acceptable and unacceptable at the same time. In a sample of manufactured parts, the event of selecting an unacceptable part and the event of selecting an acceptable part are mutually exclusive.

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If an experiment has a set of events that includes every possible outcome, such as the events "an even number" and "an odd number" in the die-tossing experiment, then the set of events is collectively exhaustive. For the die-tossing experiment, every outcome will be either even or odd. So the set is collectively exhaustive.

COLLECTIVELY EXHAUSTIVE At least one of the events must occur when an experiment is conducted. Sum of probabilities = 1

If the set of events is collectively exhaustive and the events are mutually .exclusive, the sum of the probabilities is 1. Historically, the classical approach to probability was developed and applied in the 17th and 18th centuries to games of chance, such as cards and dice. It is unnecessary to do an experiment to determine the probability of an event occurring using the classical approach because the total number of outcomes is known before the experiment. The flip of a coin has two possible outcomes; the roll of a die has six possible outcomes. We can logically arrive at the probability of getting a tail on the toss of one coin or three heads on the toss of three coins. The classical approach to probability can also be applied to lotteries. In South Carolina, one of the games of the Education Lottery is "Pick 3." A person buys a lottery ticket and selects three numbers between and 9. Once per week, the three numbers are randomly selected from a machine that tumbles three containers each with balls numbered a through 9. One way to win is to match the numbers and the order of the numbers. Given that 1,000 possible outcomes exist (000 through 999), the probability of winning with any three-digit number is 0.001, or 1 in 1,000.

a

Empirical Probability Another way to define probability is based on relative frequencies. The probability of an event happening is determined by observing what fraction of the time similar events happened in the past. In terms of a formula: Prob b'l't f th ' _ Number of times event occurred in past Total number of observations a I I Y 0 even appemng The empirical concept is illustrated with the following example.

EXAMPLE

On February 1, 2003, the space shuttle Columbia exploded, This was the second disaster in 113 space missions for NASA. On the basis of this information, what is the probability that a future mission is successfully completed?

SOLUTION

To simplify, letters or numbers may be used. P stands for probability, and in this case P(A) stands for the probability a ·future mission is successfully completed. ,Number of successful flights ,, Total number of flights Probability of a successful flight =

P(A)

111

= 113 = .98

We can use this as an estimate of probability. In other words, based on past experience, the probability is ,98 that a future space shuttle mission will be successfully completed.

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Subjective Probability If there is little or no past experience or information on which to base a probability, it may be arrived at subjectively. Essentially, this means an individual evaluates the available opinions and other information and then estimates or assigns the probability. This probability is aptly called a subjective probability.

SUBJECTIVE CONCEPT OF PROBABILITY The likelihood (probability) of a particular event happening that is assigned by an individual based on whatever information is available. Illustrations of subjective probability are: 1. 2. 3.

Estimating the likelihood the New England Patriots will play in the Super Bowl next year. Estimating the probability General Motors Corp. will lose its number 1 ranking in total units sold to Ford Motor Co. or DaimlerChrysler within 2 years. Estimating the likelihood you will earn an A in this course.

The types of probability are summarized in Chart 5-1. A probability statement always assigns a likelihood of an event that has not yet occurred. There is, of course, a considerable latitude in the degree of uncertainty that surrounds this probability, based primarily on the knowledge possessed by the individual concerning the underlying process. The individual possesses a great deal of knowledge about the toss of a die and can state that the probability that a one-spot will appear face up on the toss of a true die is one-sixth. But we know very little concerning the acceptance in the marketplace of a new and untested product. For example, even though a market research director tests a newly developed product in 40 retail stores and states that there is a 70 percent chance that the product will have sales of more than 1 million units, she still has little knowledge of how consumers will react when it is marketed nationally. In both cases (the case of the person rolling a die and the testing of a new product) the individual is assigning a probability value to an event of interest, and a difference exists only in the predictor's confidence in the precision of the estimate. However, regardless of the viewpoint, the same laws of probability (presented in the following sections) will be applied.

I Approaches to Probability I I I Classic Probability

I Based on equally likely outcomes

I Objective

I

I

I I

Empirical Probability

I Based on relative frequencies

CHART 5-1 Summary of Approaches to Probability

I Subjective

I

Based on available information

A Survey of Probability Concepts

Self-Review 5-2

1.

2.

3.

127

One card will be randomly selected from a standard 52-card deck. What is the probability the card will be a queen? Which approach to probability did you use to answer this question? The Center for Child Care reports on the parental status of 539 children. The parents of 333 children are married, 182 divorced, and 24 widowed. What is the probability a particular child chosen at random will have a parent who is divorced? Which approach did you use? What is the probability that the Dow Jones Industrial Average will exceed 12,000 during the next 12 months? Which approach to probability did you use to answer this question?

Exercises 1. Some people are in favor of reducing federal taxes to increase consumer spending and others are against it. Two persons are selected and their opinions are recorded. List the possible outcomes. 2. A quality control inspector selects a part to be tested. The part is then declared acceptable, repairable, or scrapped. Then another part is tested. List the possible outcomes of this experiment regarding two parts. 3. A survey of 34 students at the Wall College of Business showed the following majors:

Accounting Financ~

Info. Systems Management Marketing

4.

5.

6. 7.

10 5 3 6 10

Suppose you select a student and observe his or her major. a. What is the probability he or she is a management major? b. Which concept of probability did you use to make this estimate? A large company that must hire a new president prepares a final list of five candidates, all of whom are qualified. Two of these candidates are members of a minority group. To avoid bias in the selection of the candidate, the company decides to select the president by lottery. a. What is the probability one of the minority candidates is hired? b. Which concept of probability did you use to make this estimate? In each of the folioiNing cases, indicate whether classical, empirical, or subjective probability is used. . a. A basketball player makes 30 out of 50 foul shots. The probability is .6 that she makes the next foul shot attempted. b. A seven-member committee of students is formed to study environmental issues. What is the likelihood that anyone of the seven is chosen as the spokesperson? c. You purchase one of 5 million tickets sold for Lotto Canada. What is the likelihood you win the $1 million jackpot? d. The probability of an earthquake in northern California in the next 10 years is .80. A firm will promote two employees out of a group of six men and three women. a. List the outcomes of this experiment if there is particular concern about gender equity. b. Which concept of probability would you use to estimate these probabilities? A sample of 40 oil industry executives was selected to test a questionnaire. One question about environmental issues required a yes or no answer. a. What is the experiment? b. List one possible event. c. Ten of the 40 executives responded "yes." Based on these sample responses, what is the probability that an oil industry executive will respond "yes"? d. What concept of probability does this illustrate? e. Are each of the possible outcomes equally likely and mutually exclusive?

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8. A sample of 2,000 licensed drivers revealed the following number of speeding violations.

Number of Violations

o

Number of Drivers

1,910 46 18

1

2 3 4

12

9

5 or more

5 2,000

Total

a. What is the experiment? b. List one possible event. c. What Is the probability that a particular driver had exactly two speeding violations? d. What concept of probability does this illustrate? 9. Bank of America customers select their own three-digit personal identification number (PIN) for use at ATMs. a. Think of this as an experiment and list four possible outcomes. b. What is the probability Mr. Jones and Mrs. Smith select the same PIN? c. Which concept of probability did you use to answer b? 10. An investor buys 100 shares of AT&T stock and records its price change daily. a. List several possible events for this experiment. b. Estimate the probability for each event you described in a. c. Which concept of probability did you use In b?

Some Rules for Computing Probabilities Now that we have defined probability and described the different approaches to probability, we turn our attention to computing the probability of two or more events byapplying rules of addition and multiplication.

Rules of Addition Mutually exclusive events cannot both happen.

Special Rule of Addition

To apply the special rule of addition, the events must be mutually exclusive. Recall that mutually exclusive means that when one event occurs, none of the other events can occur at the same time. An illustration of mutually exclusive events in the die-tossing experiment is the events "a number 4 or larger" and "a number 2 or smaller." If the outcome is in the first group {4, 5, and 6}, then it cannot also be in the second group {1 and 2}. Another illustration is a product coming off the assembly line cannot be defective and satisfactory at the same time. If two events A and a are mutually exclusive, the special rule of addition states that the probability of one or the other events occurring equals the sum of their probabilities. This rule is expressed in the following formula:

I

SPECIAL RULE OF ADDITION

P(A or a)

= P(A) + p(a)

a, and C, the rule is written: = P(A) + p(a) + P(C)

For three mutually exclusive events designated A,

P(A or a or C)

[5-2]

An example will help to show the details.

I

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EXAMPLE

An automatic Shaw machine fills plastic bags with a mixture of beans, broccoli, and other vegetables. Most of the bags contain the correct weight, but because of the variation in the size of the beans and other vegetables, a package might be under- . weight or overweight. A check of 4,000.packages filled in the past month revealed:

Weight

Underweight Satisfactory Overweight

Event

Number of Packages

Probability of Occurrence

100 3,600 300

.025 .900 .075

4,000

1.000

A B C

What is the probability that a particular package will be either underweight or overweight?

SOLUTION

The outcome "underweight" is the event A. The outcome "overweight" is the event C. Applying the special rule of addition:

P(A or C) = P(A)

+ P(C) =

.025

+ .075 =

.10

Note that the events are mutually exclusive, meaning that a package of mixed vegetables cannot be underweight, satisfactory, and overweight at the same time. They are also collectively exhaustive; that is, a selected package must be either underweight, satisfactory, or overweight.

AVenn diagram is a useful tool to depict addition or multiplication rules.

English logician J. Venn (1835-1888) developed a diagram to portray graphically the outcome of an experiment. The mutually exclusive concept and various other rules for combining probabilities can be illustrated using this device. To construct a Venn diagram, a space is first enclosed representing the total of all possible outcomes. This space is usually in the form of a rectangle. An event is then represented by a circular area which is drawn inside the rectangle proportional to the probability of the event. The following Venn diagram represents the mutually exclusive concept. There is no overlapping of events, meaning that the events are mutually exclusive.

G The complement of an event A is the event that A does not occur. To put it another way, the collection of outcomes when A does not happen is the complement of A. The probability that a bag of mixed vegetables selected is underweight, P(A), plus the probability that it is not an underweight bag, written P(-A) and read '~not A," must logically equal 1. This is written:

P(A)

+ P(-A)

1

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This can be revised to read:

I COMPLEMENT RULE

P(A) = 1 - P(-A)

[5-3]

I

This is the complement rule. It is used to determine the probability of an event occurring by subtracting the probability of the event not occurring from 1. This rule is useful because sometimes it is easier to calculate the probability of an event happening by determining the probability of it not happening and subtracting the result from 1. Notice that the events A and -A are mutually exclusive and collectively exhaustive. Therefore, the probabilities of A and -A sum to 1. A Venn diagram illustrating the complement rule is shown as:

-A

~

EXAMP'LE,

Recall the probability a bag of mixed vegetables is underweight is .025 and the prob- ~. ability of an overweight bag is .075. Use the complement rule to show the probability of a satisfactory bag is .900. Show the solution using a Venn diagram. I

: i:: ! L· U:'Y'I'O'N; S:·O':;:,':

The probability the bag is unsatisfactory equals the probability the bag is overweight plus the probability it is underweight. That is, P(A or C) = P(A) + P(C) = .025 + .075 = .100. The bag is satisfactory if it is not underweight or overweight, so P(B) = 1 [P(A) + P(C)] = 1 - [.025 + .075] = 0.900. The Venn diagram portraying this situation is:

Self-Review 5-3

r

A sample of employees of Worldwide Enterprises is to be surveyed about a new pension plan. The employees are classified as follows:

Classification

Event

Number of Employees

Supervisors Maintenance Production Management Secretarial

A B

120 50 1,460 302 68

C D E

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A Survey of Probability Concepts

(a)

(b) (c)

What is the probability that the first person selected is: (i) either in maintenance or a secretary? (ii) not in management? Draw a Venn diagram illustrating your answers to part (a). Are the events in part (a)(i) complementary or mutually exclusive or both?

The General Rule of Addition The outcomes of an experiment may not be mutually exclusive. Suppose, for illustration, that the Florida Tourist Commission selected a sample of 200 tourists who visited the state during the year. The survey revealed that 120 tourists went to Disney World and 100 went to Busch Gardens near Tampa. What is the probability that a person selected visited either Disney World or Busch Gardens? If the special rule of addition is used, the probability of selecting a tourist who went to Disney World is .60, found by 120/200. Similarly, the prpbability of a tourist going to Busch Gardens is .50. The sum of these probabilities is 1.10. We know, however, that this probability cannot be greater than 1. The explanation is that many tourists visited both attractions and are being couhted twice! A check of the survey responses revealed that 60 out of 200 sampled did, in fact, visit both attractions. To answer our question, "What is the probability a selected person visited either Disney World or Busch Gardens?" (1) add the probability that a tourist visited Disney World and the probability he/she visited Busch Gardens, and (2) subtract the probability of visiting both. Thus: P(Disney or Busch)

=

P(Disney)

+ P(Busch)

= .60 + .50 -

- P(both Disney and Busch)

.30 = .80

When two events both occur, the probability is called a joint probability. The probability that a tourist visits both attractions (.30) is an example of a joint probability. The following Venn diagram shows two events that are not mutually exclusive. The two events overlap to illustrate the joint event that some people have visited both '. attractions.

JOINT PROBABILITY A probability that measures the likelihood two or more eveots will happen concurrently.

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P(Disney) = .60

P(Busch)

P(Disney and Busch)

= .50

= .30

This rule for two events designated A and 8 is written:

I GENERAL RULE OF ADDITION

P(A or 8)

= P(A) + P(8)

- P(A and 8)

[5-4]

I

For the expression P(A or 8), the word or suggests that A may occur or 8 may occur. This also includes the possibility that A and 8 may occur. This use of or is sometimes called an inclusive. You could also write P(A or 8 or both) to emphasize that the union of the events includes the intersection of A and 8. If we compare the general and special rules of addition, the important difference is determining if the events are mutually exclusive. If the events are mutually exclusive, then the joint probability P(A and 8) is 0 and we could use the special rule of addition. Otherwise we must account for the joint probability and use the general rule of addition.

EXAMPLE

What is the probability that a card chosen at random from a standard deck of cards will be either a king or a heart?

S,OLUTION

We may be inclined to add the probability of a king and the probability of a heart. But this creates a problem. If we do that, the king of hearts is counted with the kings and also with the hearts. So, if we simply add the probability of a king (there are 4 in a deck of 52 cards) to the probability of a heart (there are 13 in a deck of 52 cards) and report that 17 out of 52 cards meet the requirement, we have counted the king of hearts twice. We need to subtract 1 card from the 17 so the king of hearts is counted only once. Thus, there are 16 cards that are either hearts or kings. So the probability is

16/52

= .3077. Card

Probability

Explanation

King Heart King of hearts

P(A) = 4/52 P(B) = 13/52 PiA and B) = 1/52

4 kings in a deck of 52 cards 13 hearts in a deck of 52 cards 1 king of hearts in a deck of 52 cards

From formula (5-4):

+ P(8) - P(A and 8) 4/52 + 13/52 - 1/52

P(A or 8) = P(A)

16/52, or .3077 A Venn diagram portrays these outcomes, which are not mutually exclusive.

A Survey of Probability Concepts

Self-Review 5-4

133

Routine physical examinations are conducted annually as part of a health service program for General Concrete, Inc., employees. It was discovered that 8 percent of the employees need corrective shoes, 15 percent need major dental work, and 3 percent need both corrective shoes and major dental work. (a) (b)

What is the probability that an employee selected at random will need either corrective shoes or major dental work? Show this situation in the form of a Venn diagram.

Exercises 11. The events A and B are mutually exclusive. Suppose P(A) = .30 and P(B) = .20. What is the probability of either A or B occurring? What is the probability that neither A nor B will happen?

12. The events X and Yare mutually exclusive. Suppos~ P(X) = .05 and P(Y) = .02. What is the probability of either X or Y occurring? What is the probability that neither X nor Y will happen? 13. A study of 200 grocery chains revealed these incomes after taxes:

Income after Taxes Under $1 million $1 million to $20 million $20 million or more

Number of Firms 102 61

37

a. What is the probability a particular chain has under $1 million in income after taxes? b. What is the probability a grocery chain selected at random has either an income between $1 million and $20 million, or an income of $20 million or more? What rule of probability was applied? 14. The chair of the board of directors says, "There is a 50 percent chance this company will earn a profit, a 30 percent chance it will break even, and a 20 percent chance it will lose money next quarter." a. Use an addition rule to find the probability they will not lose money next quarter. b. Use the complement rule to find the probability they will not lose money next quarter. 15. Suppose the probability you will get a grade of A in this class is .25 and the probability you will get a B is .50. What is the probability your grade will be above a C? 16. Two coins are tossed. If A is the event "two heads" and B is the event "two tails," are A and B mutually exclusive? Are they complements?

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17. The probabilities of the events A and Bare .20 and .30, respectively. The probability that both A and B occur is .15. What is the probability of either A or B occurring? 18. Let P(X) = .55 and P(y) = .35. Assume the probability that they both occur is .20. What is the probability of either X or Yoccurring?

19. Suppose the two events A and B are mutually exclusive. What is the probability of their joint occurrence?

20. A student is taking two courses, history and math. The probability the student will pass the history course is .60, and the probability of passing the math course is .70. The probability of passing both is .50. What is the probability of passing at least one? 21. A survey of top executives revealed that 35 percent of them regularly read Time magazine, 20 percent read Newsweek, and 40 percent read U.S. News and World Report. Ten percent read both Time and U.S. News and World Report. a. What is the probability that a particular top executive reads either Time or U.S. News and World Report regularly? b. What is the probability .10 called? c. Are the events mutually exclusive? Explain. 22. A study by the National Park Service revealed that 50 percent of vacationers going to the Rocky Mountain region visit Yellowstone Park, 40 percent visit the Tetons, and 35 percent visit both. a. What is the probability a vacationer will visit at least one of these attractions? b. What is the probability .35 called? c. Are the events mutually exclusive? Explain.

Rules of Multiplication When we use the rules of addition we find the likelihood of combining two events. Venn diagrams illustrate this as the "union" of two events. In this section we find the likelihood that two events both happen. For example, a marketing firm may want to estimate the likelihood that a person is 21 years old or older and buys a Hummer. Venn diagrams illustrate this as the intersection of two events. To find the likelihood of two events happening we use the rules of multiplication. There are two rules of multiplication, the Special Rule and the General Rule.

Special Rule of Multiplication The special rule of multiplication requires that two events A and B are independent. Two events are independent if the occurrence of one event does not alter the probability of the occurrence of the other event.

INDEPENDENCE The occurrence of one event has no effect on the probability of the occurrence of another event. One way to think about independence is to assume that events A and B occur at different times. For example, when event B occurs after event A occurs, does A have any effect on the likelihood that event B occurs? If the answer is no, then A and Bare independent events. To illustrate independence, suppose two coins are tossed. The outcome of a coin toss (head or tail) is unaffected by the outcome of any other prior coin toss (head or tail). For two independent events A and B, the probability that A and B will both occur is found by multiplying the two probabilities. This is the special rule of multiplication and is written symbolically as:

I SPECIAL RULE OF MULTIPLICATION

P(A and B) = P(A)P(B)

[5-5]

I

For three independent events, A, B, and C, the special rule of multiplication used to determine the probability that all three events will occur is:

P(A and B and C) = P(A)P(B)P(C)

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A Survey of Probability Concepts

EXAMPLE

A survey by the American Automobile Association (AAA) revealed 60 percent of its members made airline reservations last year. Two members are selected at random. What is the probability both made airline reservations last year?

SOLUTION

The probability the first member made an airline reservation last year is .60, written P(R1) = .60, where R1 refers to the fact that the first member made a reservation. The probability that the second member selected made a reservation is also .60, so P(R2 ) = .60. Since the number of AAA members is very large, you may assume that R1 and R2 are independent. Consequently, using formula (5-5), the probability they both make a reservation is .36, found by:

P(R1 and R2)

= P(R 1)P(R2) = (.60)(.60) = .36

All possible outcomes can be shown as follows. R means a reservation is made, and NR means no reservation was made. .. . With the probabilities and the complement rule, we can compute the joint probability of each outcome. For example, the probability that neither member makes a reservation is .16. Further, the probability of the first or the second member (special addition rule) making a reservation is .48 (.24 + .24). You can also observe that the outcomes are mutually exclusive and collectively exhaustive. Therefore, the probabilities sum to 1.00. Outcomes Rl Rl NR NR Total

Self-Review 5-5

R2 NR R2 NR

Joint Probability (.60)(.60) (.60)(.40) (.40)(.60) (.40)(.40)

= = = =

.36 .24 .24 .16 1.00

From experience, Teton Tire knows the probability is .80 that their XB-70 will last 60,000 miles before it becomes bald or fails. An adjustment is made on any tire that does not last 60,000 miles. You purchase four XB-70s. What is the probability ali four tires will last at least 60,000 miles?

If two events are not independent, they are referred to as dependent. To illustrate dependency, suppose there are 10 rolls of film in a box, and it is known that 3 are defective. A roll of film is selected from the box. The probability of selecting a defective roll is 3/10, and the probability of selecting a good roll is 7/10. Then a second roll is selected from the box without the first one being returned to the box. The probability this second roll is defective depends on whether the first roll selected was defective or good. The probability that the second roll is defective is: 2/9, if the first roll was defective. (Only two defective rolls remain in the box containing nine rolls.) 3/9, if the first roll selected was good. (All three defective rolls are still in the box containing nine rolls.) The fraction 2/9 (or 3/9) is aptly called a conditional probability because its value is conditional on (dependent on) whether a defective or a good roll of film is chosen in the first selection from the box.

CONDITIONAL PROBABILITY The probability of a particular event occurring, given that another event has occurred.

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General Rule of Multiplication We use the general rule of multiplication to find the joint probability of two events when the events are not independent. For example, when event occurs after event A occurs, and A has an effect on the likelihood that event occurs, then A and are not independent. To illustrate, suppose there are 10 rolls of film in a box, and it is known that 3 are defective. A roll of film is selected from the box. The probability of selecting a defective roll is 3/10, and the probability of se-. lecting a good roll is 7/10. Then a second roll is selected from the box without returning the first one to the box. The probability that the second roll is defective is affected by the prior event'that the first roll was defective or good. The probability that the second roll is defective is either:

a

a

a

P(second roll is defective I first roll was defective) is 2/9. (Only two defective rolls remain in the box that now contains nine rolls.) P(second roll is defective I first roll was good) is 3/9. (All three defective rolls are still in the box that now contains nine rolls.) The general rule of multiplication states that for two events, A and a, the joint probability that both events will happen is found by multiplying the probability event A will happen by the conditional probability of event occurring given that A has occurred. Symbolically, the joint probability, P(A and a), is found by:

a

I GENERAL RULE OF MULTIPLICATION

P(A and a) = p(A)p(a/A)

[5-6]

I

The symbols p(a/A) stand for the conditional probability that a will occur after we have information that the related event A has occurred. The vertical line is usually read "given that." So p(a/A) is the probability of a given A.

EXAMPLE

To illustrate the formula, let's use the problem with 10 rolls of film in a box, 3 of which are defective. Two rolls are to be selected, one after the other. What is the probability of selecting a defective roll followed by another defective roll?

SOLUTION

The first roll of film selected from the box being found defective is event 0 1, P(01} = 3/10 because 3 out of the 10 are defective. Selecting a second roll that is defective is event O2 , Therefore, p(02101) = 2/9, because after the first selection was found to be defective, only 2 defective rolls of film remained in the box containing 9 rolls. Determining the probability of two defectives [see formula (5-6)]:

3

P(01 and O2) = P(01)P(02101) = ( 10) (

~) =

6 90' or about .07

Incidentally, it is assumed that this experiment was conducted without replacement-that is, the first defective roll of film was not thrown back in the box before the next roll was selected. It should also be noted that the general rule of multiplication can be extended to more than two events. For three events, A, a, and C, the formula would be:

P(A and a and C) = p(A)p(aIA)p(cIA and a) For illustration, the probability the first three rolls chosen from the box will all be defective is .00833, found by:

P(D1 and O2 and Os) = P(01)P(02101)P(OsI01 and O2) =

3 (1 0) (

~ ) ( ~) = 7~0 = :00833

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A Survey of Probability Concepts

Self-Review 5-6

The board of directors of Tarbell Industries consists of eight men and four women. A fourperson search committee is to be chosen at random to conduct a nationwide search for a new company president. (a) (b) (c)

What is the probability all four members of the search committee will be women? What is the probability all four members will be men? Does the sum of the probabilities for the events described in parts ((3.) and (b) equal 1? Explain.

Contingency Tables Often we tally the results of a survey into a two-way table and use the results of the tally to determine various probabilities. We described this idea beginning on page 109 in Chapter 4'. To review, we refer to a two-way table as a contingency table.

CONTINGENCY TABLE A table used to classify sample observations according to two or more identifiable characteristics. A contingency table is a cross tabulation that simultaneously summarizes two variables of interest and their relationship. The level of measurement can be nominal. Below are several examples. • A survey of 150 adults classified each as to gender and the number of movies attended last month. Each respondent is classified according to two criteria-the number of movies attended and gender.

Gender Movies Attended

0 1 2 or more Total

Men

Women

Total

20 40 10 70

40 30 10 80

60 70 20 .150

• The American Coffee Producers Association reports the following informatidn on age and the amount of coffee consumed in a month.

Coffee Consumption Age (years)

Low

Moderate

High

Total

Under 30 30 up to 40 40 up to 50 50 and over Total

36 18 10 26 90

32 30 24 24 110

24 27 20 29 100

92 75 54 79 300

According to this table each of the 300 respondents is classified according to two criteria: (1) age and (2) the amount of coffee consumed. The following example shows how the rules of addition and multiplication are used when we employ contingency tables.

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A sample of executives was surveyed about their loyalty to the company. One of the questions was, "If you were given an offer by another company equal to or slightly better than your present position, would you remain with the company or take the other position?" The responses of the 200 executives in the survey were crossclassified with their length of service with the company. (See Table 5-1.)

TABLE 5-1 Loyalty of Executives and Length of Service with Company Length of Service

Loyalty Would remain, A1 Would not remain, A2

Less than 1 Year 81

1-5 Years

10 25 35

Bz

6-10 Years 83

More than 10 Years 84

Total

30 15 45

5 10 15

75 30 105

120 80 200

What is the probability of randomly selecting an executive who is loyal to the company (would remain) and who has more than 10 years of service? Note that two events occur at the same time-the executive would remain with the company, and he or she has more than 10 years of service.

1.

2.

Event A1 happens if a randomly selected executive will remain with the company despite an equal or slightly better offer from another company. To find the probability that event A1 will happen, refer to Table 5-1. Note there are 120 executives out of the 200 in the survey who would remain with the company, so P(A 1) = 120/200, or ;60. Event 8 4 happens if a randomly selected executive has more than 10 years of service with the company. Thus, p(8 4 IA 1) is the conditional probability that an executive with more than 10 years of service would remain with the company despite an equal or slightly better offer from another company. Referring to the contingency table, Table 5-1, 75 of the 120 executives who would remain have more than 10 years of service, so p(8 4 IA 1) = 75/120.

Solving for the probability that an executive randomly selected will be one who would remain with the company and who has more than 10 years of service with the company, using the general rule of multiplication in formula (5-6), gives:

P(A 1 and 8 4)

= P(A 1)P(84 IA 1) = (~~~) (17250 ) =

294~00000

= .375

To find the probability of selecting an executive who would remain with the company or has less than 1 year of experience we use the general rule of addition, formula (5-4). 1.

Event A1 refers to executives that would remain with the company. So P(A 1) 120/200 = .60.

2.

Event 8 1 refers to executives that have been with the company less than 1 year. The probability of 8 1 is P(8 1) = 35/200 = .175. The events A1 and 8 1 are not mutually exclusive. That is, an executive can both be willing to remain with the company and have less than 1 year of experience. We write this probability, which is called the joint probability, as P(A 1 and 8 1). There are 10 executives who would both stay with the company and have less than 1 year of service, so P(A 1 and 8 1) = 10/200 = .05. These 10 people are in both

3.

=

A Survey of Probability Concepts

4.

139

groups, those who would remain with the company and those with less than 1 year with the company. They are actually being counted twice, so we need to subtract out this value. We insert these values in formula (5-4) and the result is as follows.

P(A 1 or B 1) = P(A 1) + P(B1) - P(A 1 and B1)

= .60 + .175 - .05 = .725 So the likelihood that a selected executive would either remain with the company or has been with the company less than 1 year is .725.

Self-Review 5-7

Refer to Table 5-1 to find the following probabilities. (a) (b) (c)

What is the probability of selecting an executive with more than 10 years of service? What is the probability of selecting an executive who would not remain with the company, given that he or she has more than 10 years of service? What is the probability of selecting an executive with more than 10 years of service or one who would not remain with the company?

Tree Diagrams The tree diagram is a graph that is helpful in organizing calculations that involve several stages. Each segment in the tree is one stage of the problem. The branches of a tree diagram are weighted by probabilities. We will use the data in Table 5-1 to show the construction of a tree diagram. Steps in constructing a tree diagram

1. 2.

3.

4.

To construct a tree diagram, we begin by drawing a heavy dot on the left to represent the root of the tree (see Chart 5-2). For this problem, two main branches go out from the root, the upper one representing "would remain" and the lower one "would not remain." Their probabilities are written on the branches, namely, 120/200 and 801200. These probabilities could also be denoted P(A 1) and P(A2). Four branches "grow" out of each of the two main branches. These branches represent the length of service-less than 1 year, 1-5 years, 6-10 years, and more than 10 years. The conditional probabilities for the upper branch of the tree, 10/120, 30/120, 51120, and so on are written on the appropriate branches. These are p(B1IA 1), p(B2IA 1), p(B3 IA 1), and p(B 4 IA 1), where B1 refers to less than 1 year of service, B2 1 to 5 years, B3 6 to 10 years, and B4 more than 10 years. Next, write the conditional probabilities for the lower branch. Finally, joint probabilities, that the events A1 and B; or the events A2 and B; will occur together, are shown on the right side. For example, the joint probability of randomly selecting an executive who would remain with the company and who has less than 1 year of service, from formula (5-6), is:

Because the joint probabilities represent all possible outcomes (would remain,

6-10 years service; would not remain, more than 10 years of service; etc.), they must sum to 1.00 (see Chart 5-2).

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Chapter 5

Loyalty

Service

10 120

Less than 1 year

120 X 10 120 = .050 200

1 - 5 years

120 X 30 120 = .150 200

6 -10 years

5 _ 120 X l20 - .025 200

75 120

Over 10 years

75 _ 120 200 X 120 - .375

25

Less than 1 year

25 80 200 X 80 = .125

1 - 5 years

80 15 200 X 80

.075

6 -10 years

80 10 200 X 80

.050

Over 10 years

80 X 30 = .150 200 80

Would remain

120 200

80

80 200 Would not remain

30

80

1.000

CHART 5-2 Tree Diagram Showing Loyalty and Length of Service

Self-Review 5-8

Consumers were surveyed on the relative number of visits to a Circuit City store (often, occasionally, and never) and if the store was conveniently located (yes and no).

Convenient Visits

Yes

No

Total

Often Occasional Never

60 25 5 90

20 35 50 105

80 60 55 195

(a) What is this table called? (b) Are visits and convenience independent? Why? Interpret your conclusion. (c) Draw a tree diagram and determine the joint probabilities

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A Survey of Probability Concepts

Exercises 23. Suppose P(A) = .40 and p(BIA) = .30. What is the joint probability of A and B? 24. Suppose P(X1) = .75 and P(Y21X1) = .40. What is the joint probability of X1 and Y2? 25. A local bank reports that 80 percent of its customers maintain a checking account, 60 percent have a savings account, and 50 percent have both. If a customer is chosen at random, what is the probability the customer has either a checking or a savings account? What is the probability the customer does not have either a checking or a savings account? 26. All Seasons Plumbing has two service trucks which frequently break down. If the probability the first truck is available is .75, the probability the second truck is available is .50, and the probability that both trucks are available is .30, what is the probability neither truck is available? 27. Refer to the following table.

First Event Second Event

A1

81 82

2 1 3

Total

~

2 3

Aa

Total

3 1

6

4

10

4

a. Determine P(A1)' b. Determine p(B 1IA2l.

c. Determine P(B 2 and A3)' 28. Three defective electric toothbrushes were accidentally shipped to a drugstore by Cleanbrush Products along with 17 nondefective ones. a. What is the probability the first two electric toothbrushes sold will be returned to the drugstore because they are defective? b. What is the probability the first two electric toothbrushes sold will not be defective? 29. Each salesperson at Stiles-Compton is rated either below average, average, or above average with respect to sales ability. Each salesperson is also rated with respect to his or her potential for advancement-either fair, good, or excellent. These traits for the 500 salespeople were cross-classified into the following table.

Potential for Advancement Sales Ability

Fair

Good

Excellent

Below average Average Above average

16 45 93

12 60 72

22 45 135

a. What is this table called? b. What is the probability a salesperson selected at random will have above average sales ability and excellent potential for advancement?

c. Construct a tree diagram showing all the probabilities, conditional probabilities, and joint probabilities.

30. An investor owns three common stocks. Each stock, independent of the others, has equally likely chances of (1) increasing in value, (2) decreasing in value, or (3) remaining the same value. List the possible outcomes of this experiment. Estimate the probability at least two of the stocks increase in value. 31. The board of directors of a small company consists of five people. Three of those are "strong leaders." If they buy an idea, the entire board will agree. The other "weak" members have no influence. Three sales reps are scheduled, one after the other, to make sales presentations to a board member of the sales rep's choice. The sales reps are convincing but do not know who the "strong leaders" are. However, they will know who the previous sales reps spoke to. The first sales rep to find a strong leader will win the account. Do the three sales reps have the same chance of winning the account? If not, find their respective probabilities of winning. 32. If you ask three strangers about their birthdays, what is the probability: (a) All were born on Wednesday? (b) All were born on different days of the week? (c) None were born on Saturday?

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Principles of Counting If the number of possible outcomes in an experiment is small, it is relatively easy to count them. There are six possible outcomes, for example, resulting from the roll of a die, namely:

r:lfilr-:lle81fi:ilfiiil ~ L.!J ~ ~ ~ l!!!J If, however, there are a large number of possible outcomes, such as the number of heads and tails for an experiment with 10 tosses, it would be tedious to count all the possibilities. They could have all heads, one head and nine tails, two heads and eight tails, and so on. To facilitate counting, three counting formulas will be examined: the multiplication formula (not to be confused with the multiplication rule described earlier in the chapter), the permutation formula, and the combination formula.

The Multiplication Formula MULTIPLICATION FORMULA If there are m ways of doing one thing and n ways of doing another thing, there are m x n ways of doing both. In terms of a formula:

MULTIPLICATION FORMULA

Total number of arrangements = (m)(n)

[5-7]

This can be extended to more than two events. For three events m, n, and 0: Total number of arrangements = (m)(n)(o)

EXAMPLE

An automobile dealer wants to advertise that for $29,999 you can buy a convertible, a two-door, or a four-door model with your choice of either wire wheel covers or solid wheel covers. How many different arrangements of models and wheel covers can the dealer offer?

SOLUTION

Of course the dealer could determine the total number of arrangements by picturing and counting them. There are six. . Convertible with wire wheel~.

Convertible with solid wheels

Two-door with wire wheels

Two-door with solid wheels

Four-door with wire wheels

Four-door with solid wheels

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A Survey of Probability Concepts

We can employ the multiplication formula as a check (where m is the number of models and n the wheel cover type). From formula (5-8): Total possible arrangements

= (m)(n) = (3)(2) = 6

It was not difficult to count all the possible model and wheel cover combinations in this example. Suppose, however, that the dealer decided to offer eight models and six types of wheel covers. It would be tedious to picture and count all the possible alternatives. Instead, the multiplication formula can be used. In this case, there are (m)(n) = (8)(6) 48 possible arrangements. Note in the preceding applications of the multiplication formula that there were two or more groupings from which you made selections. The automobile dealer, for example, offered a choice of models and a choice of wheel covers. If a home builder offered you four different exterior styles of a home to choose from and three interior floor plans, the multiplication formula would be used to find how many different arrangements were possible. The answer is there are 12 possibilities.

Self-Review 5-9

1.

An Internet clothing retailer offers sweaters and slacks for women. The sweaters and slacks are offered in coordinating colors. If sweaters are available in five colors and the slacks are available in four colors; how many different outfits can be advertised? Pioneer manufactures three models of stereo receivers, two cassette decks, four speakers, and three CD carousels. When the four types of components are sold together, they form a "system." How many different systems can the electronics firm offer?

2.

The Permutation Formula As noted, the multiplication formula is applied to find the number of possible arrangements for two or more groups. The permutation formula is applied to find the possible number of arrangements when there is only one group of objects. As illustrations of this type of problem: • Three electronic parts are to be assembled into a plug-in unit for a television set. The parts can be assembled in any order. The question involving counting is: In how many different ways can the three parts be assembled? • A machine operator must make four safety checks before starting his machine. It does not matter in which order the checks are made. In how many different ways can the operator make the checks? One order for the first illustration might be: the transistor first, the LEDs second, and the synthesizer third. This arrangement is called a permutation.

PERMUTATION Any arrangement of r objects selected from a single group of n possible objects. Note that the arrangements abc and b a c are different permutations. The formula to count the total number of different permutations is:

I

PERMUTATION FORMULA

P=~ (n - r)!

n r

where: n is the total number of objects. r is the number of objects selected.

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Chapter 5

Before we solve the two problems illustrated, note that permutations and combinations (to be discussed shortly) use a notation called n factorial. It is written nl and means the product of n(n - 1)(n - 2}(n - 3) ... (1). For instance, 51 = 5 . 4 . 3 . 2 . 1 = 120. As shown below, numbers can be canceled when the same numbers are included in the numerator and denominator. 6131

= 6 . 5 . 4 . 3 . 2 . 1(3 . 2 . 1) = 180

M

4·3·2·1

By definition, zero factorial, written 01, is 1. That is, 01 = 1.

EXAMlPIJ;:

group of three electronic parts that are to be assembled in any order, in how many different ways can they be assembled?

'ft'l·,.,i IIT'I,n'al' : :0:1. S"Oi

There are three electronic parts to be assembled, so n = 3. Because all three are to be inserted in the plug-in unit, r = 3. Solving using formula (5-8) gives:

i

nPr = (n

nl

- r)!

=

31 (3 - 3)!

=

31 01

31

31

= T = T =6

We can check the number of permutations arrived at by using the permutation formula. We determine how many "spaces" have to be filled and the possibilities for each "space." In the problem involving three electronic parts, there are three locations in the plug-in unit for the three parts. There are three possibilities for the first place, two for the second (one has been used up), and one for the third, as follows: (3)(2)(1)

= 6 permutations

The six ways in which the three electronic parts, lettered A, B, C, can be arranged are:

I ABC

BAC

CAB

ACB

BCA

CBA

In the previous example we selected and arranged all the objects, that is n = r. In many cases, only some objects are selected and arranged from the n possible objects. We explain the details of this application in the following example.

EXAMPLE

Betts Machine Shop, Inc., has eight screw machines but only three spaces availin the production area for the machines. In how many different ways can the eight be arranged in the three spaces available?

SOLUTION

are eight possibilities for the first available space in the production area, seven the second space (one has been used up), and six for the third space. Thus: (8)(7)(6) = 336, is, there are a total of 336 different possible arrangements. This could also be by using formula (5-8). If n = 8 machines, and r = 3 spaces available, the forleads to (8)(7)(6)51 = 336 R=~= 81 81 n r (n - r)l (8 - 3)1 = 51 51

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A Survey of Probability Concepts

The Combination Formula If the order of the selected objects is not important, any selection is called a combination. The formula to count the number of r object combinations from a set of n objects is:

n! r!(n - r)!

COMBINATION FORMULA

[5-9]

For example, if executives Able, Baker, and Chauncy are to be chosen as a committee to negotiate a merger, there is only one possible combination of these three; the committee of Able, Baker, and Chauncy is the same as the committee of Baker, Chauncy, and Able. Using the combination formula:

C = n

r

n! r!(n - r)!

3 .2 .1 3 . 2 . 1(1)

=1

EXAMPLE

The marketing department has been given the assignment of designing color codes for the 42 different lines of compact discs sold by Goody Records. Three colors are to be used on each CD, but a combination of three colors used for one CD cannot be rearranged and used to identify a different CD. This means that if green, yellow, and violet were used to identify one line, then yellow, green, and violet (or any other combination of these three colors) cannot be used to identify another line. Would seven colors taken three at a time be adequate to color code the 42 lines?

SOLUTION

According to formula (5-9), there are 35 combinations, found by 7

n! 7! C3 = r!(n - r)! = 3!(7 - 3)!

7! 3!4!

=

35

The seven colors taken three at a time (Le., three colors to a line) would not be adequate to color-code the 42 different lines because they would provide only 35 combinations. Eight colors taken three at a time would give 56 different combinations. This would be more than adequate to color-code the 42 different lines.

When the number of permutations or combinations is large, the calculations are tedious. Computer software and handheld calculators have "functions" to compute these numbers. The Excel output for the location of the eight screw machines in the production area of Betts Machine Shop, Inc. is shown below. There are a total of 336 arrangements.

Below is the output for the color codes at Goody Records, Inc. Three colors are chosen from among seven possible. The number of combinations possible is 35.

146

Self-Review 5-10

Chapter 5

1.

2.

3.

4.

5.

A musician wants to write a score based on only five chords: 8-flat, C, D, E, and G. However, only three chords out of the five will be used in succession, such as C, 8-flat, and E. Repetitions, such as 8-flat, 8-flat, and E, will not be permitted. (a) How many permutations of the five chords, taken three at a time, are possible? (b) Using formula (5-9), how many permutations are possible? A machine operator must make four safety checks before starting to machine a part. It does not matter in which order the checks are made. In how many different ways can the operator make the checks? The 10 numbers 0 through 9 are to be used in code groups of four to identify an item of clothing. Code 1083 might identify a blue blouse, size medium; the code group 2031 might identify a pair of pants, size 18; and so on. Repetitions of numbers are not permitted. That is, the same number cannot be used twice (or more) in a total sequence. For example, 2256, 2562, or 5559 would not be permitted. How many different code groups can be designed? In the above example involving Goody Records, we said that eight colors taken three at a time would give 56 differenfcombinations. (a) Use formula (5-9) to show this is true. (b) As an alternative plan for color coding the 42 different lines, it has been suggested that only two colors be placed on a disc. Would 10 colors be adequate to color code the 42 different lines? (Again, a combination of two colors could be used only oncethat is, if pink and blue were coded for one line, blue and pink could not be used to identify a different line.) In a lottery game, three numbers are randomly selected from a tumbler of balls numbered 1 through 50. (a) How many permutations are possible? (b) How many combinations are possible?

Exercises 33. Solve the following:

a. 40!/35! b. 7P4 C. 5C2

34. Solve the following:

a. 20!/17! b. gP3 C. 7C2

35. Irwin Publishing, Inc., as part of its summer sales meeting, has arranged a golf outing at the Quail Creek Golf and Fish Club. Twenty people have signed up to play in the outing. The PGA Professional at Quail Creek is responsible for arranging the foursomes (four golfers playing together). How many different foursomes are possible? 36. A telephone number consists of seven digits, the first three representing the exchange. How many different telephone numbers are possible within the 537 exchange? 37. An overnight express company must include five cities on its route. How many different routes are possible, assuming that it does not matter in which order the cities are included in the routing?

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A Survey of Probability Concepts

38. A representative of the Environmental Protection Agency (EPA) wants to select samples from 10 landfills. The director has 15 landfills from which she can collect samples. How many different samples are possible? 39. A national pollster has developed 15 questions designed to rate the performance of the President of the United States. The pollster will select 10 of these questions. How many different arrangements are there for the order of the 10 selected questions? 40. A company is creating three new divisions and seven managers are eligible to be appointed head of a division. How many different ways could the three new heads be appointed?

Chapter Outline I. A probability is a value between 0 and 1 inclusive that represents the likelihood a particular event will happen. A. An experiment is the observation of some activity or the act of taking some measurement. B. An outcome is a particular result of an experiment. C. An event is the collection of one or more outcomes of an experiment. II. There are three definitions of probability. A. The classical.definition applies when there are n equally likely outcomes to an experiment. B. The empirical definition occurs when the number of times an event happens is divided by the number of observations. C. A subjective probability is based on whatever information is available. III. Two events are mutually exclusive if by virtue of one event happening the other cannot happen. IV. Events are independent if the occurrence of one event does not affect the occurrence of another event. V. The rules of addition refer to the union of events. A. The special rule of addition is used when events are mutually exclusive.

P(A or B) = P(A)

+ P(B)

[5-2]

B. The general rule of addition is used when the events are not mutually exclusive.

P(A or B) = P(A)

+ P(B)

[5-4]

- P(A and B)

C. The complement rule is used to determine the probability of an event happening by subtracting the probability of the event not happening from 1.

[5-3]

P(A) = 1 - P(-A) VI. The rules of multiplication refer to the product of events. A. The special rule of multiplication refers to events that are independent.

P(A and B)

= P(A)P(B)

[5-5]

B. The general rule of multiplication refers to events that are not independent.

[5-6]

P(A and B) = P(A)P(BIA)

C. A joint probability is the likelihood that two or more events will happen at the same time. D. A conditional probability is the likelihood that an event will happen, given that another event has already happened. VII. There. are three counting rules that are useful in determining the number of outcomes in an experiment. A. The multiplication rule states that if there are m ways one event can happen and n ways another event can happen, then there are mn ways the two events can happen .

Number of arrangements

= (m)(n)

. [5-7]

B. A permutation is an arrangement in which the order of the objects selected from a specific pool of objects is important.

P=~ n r (n - r)!

[5-8]

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Chapter 5

C. A combination is an arrangement where the order of the objects selected from a specific pool of objects is not important.

C =

n r

n! r!(n - r)!

[5 9] -

Pronunciation Key SYMBOL

MEANING

PRONUNCIATION

P(A)

Probability of A

PofA

P(-A)

Probability of not A

P of notA

P(A and a)

Probability of A and a

P of A and a

P(A ora)

Probability of A or a

P of A or a

p(Ala)

Probability of A given a has happened

P of A given a

nP,

Permutation of n items selected r at a time

Pnr

nCr

Combination of n items selected r at a time

Cnr

Chapter Exercises 41. The marketing research department at Vernors plans to survey teenagers about a newly developed soft drink. Each will be asked to compare it with his or her favorite soft drink. a. What is the experiment? b. What is one possible event? 42. The number of times a particular event occurred in the past is divided by the number of occurrences. What is this approach to probability called? 43. The probability that the cause and the cure for all cancers will be discovered before the year 2010 is .20. What viewpoint of probability does this statement illustrate? 44. Berdine's Chicken Factory has several stores in the Hilton Head, South Carolina, area. When interviewing applicants for server positions, the owner would like to include information on the amount of tip a server can expect to earn per check (or bill). A study of 500 recent checks indicated the server earned the following tip.

Amount of Tip

Number

$ 0 up to $ 5

200 100 75 75 50

5 up to 10 10 up to 20 20 up to 50 50 or more Total

-

500

a. What is the probability of a tip of $50 or more? b. Are the categories "$0 up to $5," "$5 up to $10," and so on considered mutually exclusive?

c. If the probabilities associated with each outcome were totaled, what would that total be?

d. What is the probability of a tip of up to $1 O?

e. What is the probability of a tip of less than $50? 45. Define each of these items:

a. Conditional probability b. Event

c. Joint probability 46. The first card selected from a standard 52-card deck was a king.

a. If it is returned to the deck, what is the probability that a king will be drawn on the second selection?

b. If the king is not replaced, what is the probability that a king will be drawn on the second selection?

c. What is the probability that a king will be selected on the first draw from the deck and another king on the second draw (assuming that the first king was not replaced)?

A Survey of Probability Concepts

149

47. Armco, a manufacturer of traffic light systems, found that under accelerated-life tests, 95 percent of the newly developed systems lasted 3 years before failing to change signals properly. a. If a city purchased four of these systems, what is the probability all four systems would operate properly for at least 3 years? b. Which rule of probability does this illustrate? c. Using ietters to represent the four systems, write an equation to show how you arrived at the answer to part a. 48. Refer to the following picture.

-8

49.

50.

51.

52.

53.

a. What is the picture called? b. What rule of probability is illustrated? c. B represents the event of choosing a family that receives welfare payments. What does P(B) + P(-B) equal? In a management trainee program at Claremont Enterprises, 80 percent of the trainees are female and 20 percent male. Ninety percent of the females attended college, and 78 percent of the males attended college. a. A management trainee is selected at random. What is the probability that the person selected is a female who did not attend college? b. Are gender and attending college independent? Why? c. Construct a tree diagram showing all the probabilities, conditional probabilities, and joint probabilities. d. Do the joint probabilities total 1.00? Why? Assume the likelihood that any flight on Northwest Airlines arrives within 15 minutes of the scheduled time is .90. We select four flights from yesterday for study. a. What is the likelihood all four of the selected flights arrived within 15 minutes of the scheduled time? b. What is the likelihood that none of the selected flights arrived within 15 minutes of the scheduled time? c. What is the likelihood at least one of the selected flights did not arrive within 15 minutes of the scheduled time? There are 100 employees at Kiddie Carts International. Fifty-seven of the employees are production workers, 40 are supervisors, 2 are secretaries, and the remaining employee is the president. Suppose an employee is selected: a. What is the probability the selected employee is a production worker? b. What is the probability the selected employee is either a production worker or a supervisor? c. Refer to part b. Are these events mutually exclusive? d. What is the probability the selected employee is neither a production worker nor a supervisor? Albert Pujols of the St. Louis Cardinals had the highest batting average in the 2003 Major League Baseball season. His average was .359. So assume the probability of getting a hit is .359 for each time he batted. In a particular game assume he batted three times. a. This is an example of what type. of probability? b. What is the probability of getting three hits in a particular game? c. What is the probability of not getting any hits in a game? d. What is the probability of getting at least one hit? The probability that a bomber hits its target on any particular mission is .80. Four bombers are sent after the same target. What is the probability: a. They all hit the target? b. None hit the target? c. At least one hits the target?

150

Chapter 5

54. Ninety students will graduate from Lima Shawnee High School this spring. Of the 90 students, 50 are planning to attend college. Two students are to be picked at random to carry flags at the graduation. a. What is the probability both of the selected students plan to attend college? b. What is the probability one of the two selected students plans to attend college? 55. Brooks Insurance, Inc. wishes to offer life insurance to men age 60 via the Internet. Mortality tables indicate the likelihood of a 60-year-old man surviving another year is .98. If the policy is offered to five men age 60: a. What is the probability all five men survive the year? b. What is the probability at'least one does not survive? 56. Forty percent of the homes constructed in the Prince Creek development include a security system. Three homes are selected at random: a. What is the probability all three of the selected homes have a security system? b. What is the probability none of the three selected homes have a security system? c. What is the probability at least one of the selected homes has a security system? d. Did you assume the events to be dependent or independent? 57. Refer to Exercise 56, but assume there are 10 homes in the Prince Creek development and four of them have a security system. Three homes are selected at random: a. What is the probability all three of the selected homes have a security system? b. What is the probability none of the three selected homes have a security system? c. What is the probability at least one of the selected homes has a security system? d. Did you assume the events to be dependent or independent? 58. A juggler has a bag containing four blue balls, three green balls, two yellow balls, and one red ball. The juggler picks a ball at random. Then, without replacing it, he chooses a second ball. What is the probability the juggler first draws a yellow ball followed by a blue ball? 59. The board of directors of Saner Automatic Door Company consists of 12 members, 3 of whom are women. A new policy and procedures manual is to be written for the company. A committee of 3 is randomly selected from the board to do the writing. a. What is the probability that all members of the committee are men? b. What is the probability that at least 1 member of the committee is a woman? 60. A survey of undergraduate students in the School of Business at Northern University revealed the following regarding the gender and majors of the students:

Major Gender

Accounting

Management

Finance

Total

Male Female

100 100 200

150 50 200

50 50 100

300 200 500

Total

a. What is the probability of selecting a female student? b. What is the probability of selecting a finance or accounting major? c. What is the probability of selecting a female or an accounting major? Which rule of addition did you apply? d. Are gender and major independent? Why? e. What is the probability of selecting an accounting major, given that the person selected is a male? f. Suppose two students are selected randomly to attend a lunch with the president of the university. What is the probability that both of those selected are accounting majors? 61. The Wood County sheriff classifies crimes by age (in years) of the criminal and whether the crime is violent or nonviolent. As shown below, a total of 150 crimes were reported by the sheriff last year.

Age (in years) Type of Crime Violent Nonviolent Total

Under 20

20 to 40

Over 40

Total

27 12 39

41 34 75

14 22 36

82 68 150

A Survey of Probability Concepts

151

a. What is the probability of selecting a case to analyze and finding it involved a violent crime?

b. What is the probability of selecting a case to analyze and finding the crime was committed by someone less than 40 years old?

c. What is the probability of selecting a case that involved a violent crime or an offender less than 20 years old? Which rule of addition did you apply?

d. Given that a violent crime is selected for analysis, what is the probability the crime was committed by a person under 20 years old?

e. Two crimes are selected for review by Judge Tybo. What is the probability that both are violent crimes?

62. An investor purchased 100 shares of 5/3 Bank stock and 100 shares of Santee Cooper

63.

64.

65.

66.

67.

68.

69.

70. 71.

Electric stock. The probability the bank stock will appreciate over a year is .70. The probability the electric utility will increase over the same period is .60. a. What is the probability both stocks appreciate during the period? b. What is the probability the bank stock appreciates but the utility does not? c. What is the probability at least one of the stocks appreciates? With each purchase of a large pizza at Tony's Pizza, the customer receives a coupon that can be scratched to see if a prize will be awarded. The odds of winning a free soft drink are 1 in 10, and the odds of winning a free large pizza are 1 in 50. You plan to eat lunch tomorrow at Tony's. What is the probability: a. That you will win either a large pizza or a soft drink? b. That you will not win a prize? c. That you will not win a prize on three consecutive visits to Tony's? d. That you will win at least one prize on one of your next three visits to Tony's? For the daily lottery game in Illinois, participants select three numbers between 0 and 9. A number cannot be selected more than once, so a winning ticket could be, say, 307. Purchasing one ticket allows you to select one set of numbers. The winning numbers are announced on TV each night. a. How many different outcomes (three-digit numbers) are possible? b. If you purchase a ticket for the game tonight, what is the likelihood you will win? c. Suppose you purchase three tickets for tonight's drawing and select a different number for each ticket. What is the probability that you will not win with any of the tickets? Several years ago Wendy's Hamburgers advertised that there are 256 different ways to order your hamburger. You may choose to have, or omit, any combination of the following on your hamburger: mustard, ketchup, onion, pickle, tomato, relish, mayonnaise, and lettuce. Is the advertisement correct? Show how you arrive at your answer. It was found that 60 percent of the tourists to China visited the Forbidden City, the Temple of Heaven, the Great Wall, and other historical sites in or near Beijing. Forty percent visited Xi'an with its magnificent terracotta soldiers, horses, and chariots, which lay buried for over 2,000 years. Thirty percent of the tourists went to both Beijing and Xi'an. What is the probability that a tourist visited at least one of these places? A new chewing gum has been developed that is helpful to those who want to stop smoking. If 60 percent of those people chewing the gum are successful in stopping smoking, what is the probability that in a group of four smokers using the gum at least one quits smoking? Reynolds Construction Company has agreed not to erect all "look-alike" homes in a new subdivision. Five exterior designs are offered to potential home buyers. The builder has standardized three interior plans that can be incorporated in any of the five exteriors. How many different ways can the exterior and interior plans be offered to potential home buyers? A new sports car model has defective brakes 15 percent of the time and a defective steere ing mechanism 5 percent of the time. Let's assume (and hope) that these problems occul;.;' . . independently. If one or the other of these problems is present, the car is called a "Iemon;'~~ If both of these problems are present, the car is a "hazard." Your instructor purchased oile.'Y., of these cars yesterday. What is the probability it is: . a. A lemon? b. A hazard? The state of Maryland has license plates with three numbers followed by three letters. How many different license plates are possible? There are four people being considered for the position of chief executive officer of Dalton ,', Enterprises. Three of the applicants are over 60 years of age. Two are female, of which only one is over 6 0 . . . , ' "'.,,,.'.,,'.,, : a. What is the probability that a candidate is over 60 and female? b. Given that the candidate is male, what is the probability he is less than 60? c. Given that the person is over 60, what is the probability the person is female? .~'.

152

Chapter 5

72. Tim Bleckie is the owner of Bleckie Investment and Real Estate Company. The company recently purchased four tracts of land in Holly Farms Estates and six tracts in Newburg Woods. The tracts are all equally desirable and sell for about the same amount. a. What is the probability that the next two tracts sold will be in Newburg Woods? b. What is the probability that of the next four sold at least one will be in Holly Farms? c. Are these events independent or dependent? 73. A computer password consists of four characters. The characters can be one of the 26 letters of the alphabet. Each character may be used more than once. How many different passwords are possible? 74. A case of 24 cans contains 1 can that is contaminated. Three cans are to be chosen randomly for testing. a. How many different combinations of 3 cans could be selected? b. What is the probability that the contaminated can is selected for testing? 75. A puzzle in the newspaper presents a matching problem. The names of 10 U.S. presidents are listed in one column, and their vice presidents are listed in random order in the second column. The puzzle asks the reader to match each president with his vice president. If you make the matches randomly, how many matches are possible? What is the probability all 10 of your matches are correct? 76. The following diagram represents a system of two components, A and B, which are in series. (Being in series means that for the system to operate, both components A and B must work.) Assume the two components are independent. What is the probability the system works under these conditions? The probability A works is .90 and the probability B functions is also .90.

D

exerCIses. com 77. During the 1970s the game show Let's Make a Deal had a long run on TV. In the show a contestant was given a choice of three doors, behind one of which was a prize. The other two doors contained a gag gift of some type. After the contestant selected a door, the host of the show then revealed to them one of the doors from among the two not selected. The host asked the contestant if they wished to switch doors to one of those not chosen. Should the contestant switch? Are the odds of winning increased by switching doors? Go to the following website, which is administered by the Department of Statistics at the University of South Carolina, and try your strategy: http://www.stat.sc.edu/-west/applets/ LetsMakeaDeCll.html; Go to the following website and read about the odds for the game: http://www.stat.sc.edu/-west/javahtml/LetsMakeaDeal.html. Was your strategy correct?

Dataset Exercises 78. Refer to the Real Estate data, which reports information on homes sold in the Denver, Colorado, area during the last year. a. Sort the data into a table that shows the number of homes that have a pool versus the number that don't have a pool in each of the five townships. If a home is selected at random, compute the following probabilities. (1) The home is in Township 1 or has a pool. (2) Given that it is in Township 3, that it has a pool. (3) Has a pool and is in Township 3. b. Sort the data into a table that shows the number of homes that have a garage versus those that don't have a garage in each of the five townships. If a home is selected at random, compute the following probabilities: (1) The home has a garage. (2) Given that it is in Township 5, that it does not have a garage. (3) The home has a garage and is in Township 3. (4) Does not have a garage or is in Township 2.

A Survey of Probability Concepts

153

79. Refer to the Baseball 2003 data, which reports information on the 30 Major League Baseball teams for the 2003 season. Set up a variable that divides the teams into two groups, those that had a winning season and those that did not. That is, create a variable to count the teams that won 81 games or more, and those that won 80 or less. Next create a new variable for attendance, using three categories: attendance less than 2.0 million, attendance of 2.0 million up to 3.0 million, and attendance of 3.0 million or more. a. Create a table that shows the number of teams with a winning seas~>n versus those with a losing season by the three categories of attendance. If a team is selected at random, compute the following probabilities: (1) Having a winning season. (2) Having a winning season or attendance of more than 3.0 million. (3) Given attendance of more than 3.0 million, having a winning season. (4) Having a losing season and drawing less than 2.0 million. b. Create a table that shows the number of teams that play on artificial surfaces and natural surfaces by winning and losing records. If a team is selected at random, compute the following probabilities: (1) Selecting a team with a home field that has a natural surface. (2) Is the likelihood of selecting a team with a winning record larger for teams with natural or artificial surfaces? (3) Having a winning record or playing on an artificial surface. 80. Refer to the wage data set, which reports information on annual wages for a sample of 100 workers. Also included are variables relating to industry, years of education, and gender for each worker. Develop a table showing the industry of employment by gender. A worker is randomly selected; compute the probability the person selected is: a. Female. b. Female or in manufacturing. c. Female given that the selected person is in manufacturing. d. Female and in manufacturing.

Software Commands 1. The Excel commands to determine the number of permutations shown on page 145 are: a. Click on Insert on the tool bar, then select the fx function and click OK. b. In the Paste Function box select Statistical and in the Function name column scroll down to PERMUT and click OK. c. In the PERMUT box after Number enter 8 and in the Numbecchosen box enter 3. The correct answer of 336 appears twice in the box.

2. The Excel commands to determine the number of combinations shown on page 146 are: a. Click on Insert on the toolbar, then select the fx function and click OK. b. In the Paste Function box select Math & Trig and in the Function name column scroll down to COMBIN and click OK. c. In the COMBIN box after Number enter 7 and in the Number_chosen box enter 3. The correct answer 35 appears twice in the box.

154

Chapter 5

Chapter 5 Answers to Self-Review 5-1

5-2

a. Testing of the new computer game. b. Seventy-three players liked the game. c. No. Probability cannot be greater than 1. The probability that the game, if put on the market, will be successful is 65/80, or .8125. d. Cannot be less than O. Perhaps a mistake in arithmetic. e. More than half of the per!:l!:ms te~Jiog the gC[l1e liked it. (Of course, other answers are possible.) 1 P(Q •

5-4

major dental work is event B.

P(A or B) = P(A) + P(B) - P(A and B) = .08 + .15 - .03 = .20 b. One possibility is:

) = 4 queens in deck ueen 52 cards total

= 5~ = .0769 2. P(Divorced)

= ~~~ = .338

Classical. Empirical.

3. The author's view when writing the text of the chance that the DJIA will climb to 12,000 is .25.

5-5 5-6

You may be more optimistic or less optimistic. Subjective.

5-3

a. i.

a. Need for corrective shoes is event A. Need for

P(B or E)

(.80)(.80)(.80)(.80) = .4096. a. .002, found by:

1~) ( 131 ) ( 10) ( ~ ) = 11~:80 = .002 2

(

= (50 + 68) = .059

b. .14, found by:

2,000

8 7 6 ( 1 2) ( 11) ( 10)(

302

ii. P(-D) = 1 - P(D) = 1 - 2,000 = .849

~) = 111~:800 = .1414

c. No, because there are other possibilities, such

b.

as three women and one man.

5-7

105 a. P(B 4) = 200 = .525

I

b. P(A 2 B4)

30

= 105 = .286 80

105

30

155

c. P(A 2 or B4) = 200 + 200 - 200 = 200 = .775 5-8

a. Contingency table b. Independence requires that p(AIB) = P(A). One possibility is:

I

P(visit often yes convenient location) = P(visit often)

-D c. They are not complementary, but are mutually exclusive.

Does 60/90 = 80/195? No, the two variables are not independent. Therefore, any joint probability in the table must be computed by using the general rule of multiplication.

155

A Survey of Probability Concepts

c.

Joint probabilities

2. 24, found by: 4! 4! (4 - 4)! = O!

.31

= ~ = 4 .3 .2 .1 1

3. 5,040, found by:

.13 yes .03

Convenient no

10! (10 - 4)!

4. a. 56 is correct, found by:

sG3

.10

20/ 105

10 . 9 . 8 . 7 . e ii 4 @ 2 1 e ii 4 a 2

= r!(n

n! - r)!

= 3!(8

8! - 3)!

= 56

b. Yes. There are 45 combinations, found by:

Often

G

10 2 . 501 105

.25

= r!(n

n! - r)!

10! - 2)!

= 2!(10

50!

5. a.

50P3

= (50 _ 3)! = 117,600

b.

50 G3

= 3!(50 _ 3)! = 19,600

Never 5-9 . 1. (5)(4) = 20 2. (3)(2)(4)(3) = 72 5-10 1. a. 60, found by (5)(4)(3). b. 60, found by: 5! 5.4.3. g.....:j. (5 - 3)! = g.....:j.

50!

= 45

Discrete Probability Distributions GOALS When you have completed this chapter, you will be able to:

Define the terms probability distribution and random variable.

1

Distinguish between discrete and continuous probability distributions.

2

Calculate the mean, variance, and standard deviation of 'a discrete probability distribution.

3

Describe the characteristics of and compute probabilities using the binomial probability distribution.

4

Describe the characteristics of and compute probabilities using the Poisson probability distribution.

S

Croissant Bakery, Inc. offers special decorated cakes for birthdays, weddings, and other occasions. They also have regular cakes available in their bakery. The table on page 179, exercise 38, gives the total number of cakes sold per day and the corresponding probability. Compute the mean, variance, and standard deviation of the number of cakes sold per day. (See Goal 3 and Exercise 38.)

Discrete Probability Distributions

157

Introduction Chapters 2 through 4 are devoted to descriptive statistics. We describe raw data by organizing it into a frequency distribution and portraying the distribution in tables, graphs, and charts. Also, we compute a measure of location-such as the arithmetic mean, median, or mode-to locate a typical value near the center of the distribution. The range and the standard deviation are used to describe the spread in the data. These chapters focus on describing something that has already happened. Starting with Chapter 5, the emphasis changes-we begin examining something that would probably happen. We note that this facet of statistics is called statistical inference. The objective is to make inferences (statements) about a population based on a number of observations, called a sample, selected from the population. In Chapter 5, we state that a probability is a value between 0 and 1 inclusive, and we examine how probabilities can be combined using rules of addition and multiplication. This chapter will begin the study of probability distributions. A probability distribution gives the entire range of values that can occur based on an experiment. A probability distribution is similar to a relative frequency distribution. However, instead of describing the past, it describes the likelihood of some future event. For example, a drug manufacturer may claim a treatment will cause weight loss for 80 percent of the population. A consumer protection agency may test the treatment on a sample of six people. If the manufacturer's claim is true, it is almost impossible to have an outcome where no one in the sample loses weight and it is most likely that 5 out of the 6 do lose weight. In this chapter we discuss the mean, variance, and standard deviation of a probability distribution. We also discuss frequently occurring probability distributions: the binomial and Poisson.

What Is a Probability Distribution? A probability distribution shows the possible outcomes of an experiment and the probability of each of these outcomes.

PROBABILITY DISTRIBUTION A listing of all the outcomes of an experiment and the probability associated with each outcome. How can we generate a probability distribution? Suppose we are interested in the number of heads showing face up on three tosses of a coin. This is the experiment. The possible results are: zero heads, one head, two heads, and three heads. What is the probability distribution for the number of heads?

· SO ILU'liliDiNI

There are eight possible outcomes. A tail might appear face up on the first toss, another tail on the second toss, and another tail on the third toss of the coin. Or we might get a tail, tail, and head, in that order. We use the multiplication formula for counting outcomes (5-7). There are (2)(2)(2) or 8 possible results. These results are listed below. Coin Toss Possible Result

First

Second

Third

1 2

T T T T H H H H

T T H H T T H H

T H T H T H T H

3

4 5 6

7 8

Number of Heads 0

1 1 2 1 2 2 3

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Chapter 6

Note that the outcome "zero heads" occurred only once, "one head" occurred three times, "two heads" occurred three times, and the outcome "three heads" occurred only once. That is, "zero heads" happened one out of eight times or .125. Thus, the probability of zero heads is one eighth, the probability of one head is three eighths or .375, and so on. The probability distribution is shown in Table 6-1. Note that, since one of these outcomes must happen, the total of the probabilities of all possible events is 1.000. This is always true. The same information is shown in Chart 6-1.

TABLE 6-1 Probability Distribution for the Events of Zero, One, Two, and Three Heads Showing Face Up on Three Tosses of a Coin Number of Heads, x

Probability of Outcome, P(x)

0 1 2 3

.125 .375 .375 .125

Total

1.000

... P(x)

fit 0

I I 2

3

Number of heads

CHART 6-1 Graphical Presentation of the Number of Heads Resulting from Three Tosses of a Coin and the Corresponding Probability

Characteristics of a probability distribution

Before continuing, we should note two important characteristics of a probability distribution. 1.

2.

Self-Review 6-1

The probability of a particular outcome is between 0 and 1, inclusive. [[he probabilities of x, written P(x) in the coin tossing example, were P(O head) = 0.125, P(1 head) = 0.375, etc.] The sum of the probabilities of all mutually exclusive events is 1.000. (Referring to Table 6-1, .125 + .375 + .375 + .125 = 1.000.)

The possible outcomes of an experiment involving the roll of a six-sided die are: a one-spot, a two-spot, a three-spot, a four-spot, a five-spot, and a six-spot. (a) (b) (c)

Develop a probability distribution for the number of possible spots •. Portray the probability distribution graphically. What is the sum of the probabilities?

Discrete Probability Distributions

159

Random Variables In any experiment of chance, the outcomes occur randomly. So it is often called a random variable. For example, rolling a single die is an experiment: anyone of six possible outcomes can occur. Some experiments result in outcomes that are quantitative (such as dollars, weight, or number of Children), and others result in qualitative outcomes (such as color or religious preference). A few examples will further illustrate what is meant by a random variable. • If we count the number of employees absent from the day shift on Monday, the number might be 0, 1, 2, 3, .... The number absent is the random variable. • If we weigh four steel ingots, the weights might be 2,492 pounds, 2,497 pounds, 2,506 pounds, and so on. The weight is the random variable. • If we toss two coins and count the number of heads, there could be zero, one, or two heads. Because the number of heads resulting from this experiment is due to chance, the number of heads appearing is the random variable. • Other random variables might be: the number of defective light bulbs produced during each of the last 52 weeks at the Cleveland Bulb Company, Inc., the grade level (9, 10, 11, or 12) of the members of the St. James Girls' Varsity basketball team, the number of runners in the Boston Marathon for each of the last 20 years, and the number of drivers charged in each month for the last 36 months with driving under the influence of alcohol in Texas.

RANDOM VARIABLE A quantity resulting from an experiment that, by chance, can assume different values. The following diagram illustrates the terms experiment, outcome, event, and random variable. First, for the experiment where a coin is tossed three times, there are eight possible outcomes. In this experiment, we are interested in the event that one head occurs in the three tosses. The random variable is the number of heads. In terms of probabilitY,we want to know the probability of the event that the random variable equals 1. The result is P(1 head in 3 tosses) = 0.375. Possible outcomes for three coin tosses THH HTH HHT The

HHH

{one head} occurs and the random variable x = 1.

A random variable may be either discrete or continuous.

Discrete Random Variable A discrete random variable can assume only a certain number of separated values. If there are 100 employees, then the count of the number absent on Monday can only be 0, 1, 2, 3, ... , 100. A discrete random variable is usually the result of counting something. By way of definition:

160

Chapter 6

DISCRETE RANDOM VARIABLE A random variable that can assume only certain clearly separated values. A discrete random variable can, in some cases, assume fractional or decimal values. These values must be separated, that is, have distance between them. As an example, the scores awarded by judges for technical competence and artistic form in figure skating are decimal values, such as 7.2,8.9, and 9.7. Such values are discrete because there is distance between scores of, say, 8.3 and 8.4. A score cannot be 8.34 or 8.347, for example.

Continuous Random Variable On the other hand, if the random variable is continuous, then the distribution is a continuous probability distribution. If we measure something such as the width of a room, the height of a person, or the pressure in an automobile tire, the variable is a continuous random variable. It can assume one of an infinitely large number of values, within certain limitations. As examples: • The times of commercial flights between Atlanta and Los Angeles are 4.67 hours, 5.13 hours, and so on. The random variable is the number of hours. • Tire pressure, measured in pounds per square inch (psi), for a new Chevy Trailblazer might be 32.78 psi, 31.62 psi, 33.07 psi, and so on. In other words, any values between 28 and 35 could reasonably occur. The random variable is the tire pressure. Logically, if we organize a set of possible values of a discrete random variable in a probability distribution, the distribution is a discrete probability distribution. The tools used, as well as the probability interpretations, are different for discrete and continuous random variables. This chapter is limited to discrete probability distributions. The next chapter will address two continuous probability distributions.

The Mean, Variance, and Standard Deviation of a Probability Distribution The mean reports the central location of the data and the variance describes the spread in the data. In a similar fashion, a probability distribution is summarized by its mean and variance. We identify the mean of a probability distribution by the lowercase Greek letter mu (f.L) and the standard deviation by the lower case Greek letter sigma (a).

Mean The mean is a typical value used to represent the central location of a probability distribution. It also is the long-run average value of the random variable. The mean of a probability distribution is also referred to as its expected value. It is a weighted average where the possible values of a random variable are weighted by their corresponding probabilities of occurrence. The mean of a discrete probability distribution is computed by the formula:

I MEAN OF A PROBABILITY DISTRIBUTION

f.L

=

k[XP(X)]

[6-1]

I

where P(x) is the probability of a particular value x. In other words, multiply each x value by its probability of occurrence, and then add these products.

Discrete Probability Distributions

161

Variance and Standard Deviation The mean is a typical value used to summarize a discrete probability distribution. However, it does not describe the amount of spread (variation) in a distribution. The variance does this. The formula for the variance of a probability distribution is:

I

VARIANCE OF A PROBABILITY DISTRIBUTION

[6-2]

I

The computational steps are: 1. 2. 3.

Subtract the mean from each value, and square this difference. Multiply each squared difference by its probability. Sum the resulting products to arrive at the variance. The standard deviation, 0', is found by taking the positive square root of 0'2; that is,

O'=W.

EXAMPLE

John Ragsdale sells new cars for Pelican Ford. John usually sells the largest number of cars on Saturday. He has the following probability distribution for the number of cars he expects to sell on a particular Saturday.

Number of Cars Sold, x

.1 .2

0 1 2

.3 .3

3 4

Total

1. 2. 3.

SOLUTION

Probability P(x)

.1 1.0

What type of distribution is this? On a typical Saturday, how many cars does John expect to. sell? What is the variance of the distribution?

We begin by describing the type of probability distribution. 1.

2.

This is a discrete probability distribution for the random variable called "number of cars sold." Note that John expects to sell only within a certain range of cars; he does not expect to sell 5 cars or 50 cars. Further, he cannot sell half a car. He can sell only 0, 1, 2, 3, or 4 cars. Also, the outcomes are mutually exclusive-he cannot sell a total of both 3 and 4 cars on the same Saturday. The mean number of cars sold is computed by multiplying the number of cars sold by the corresponding probability of selling that number of cars, and then summing the products. These steps are summarized in formula (6-1): ~[xP(X)l

I-L

= =

0(.10)

+ 1(.20) + 2(.30) + 3(.30) + 4(.10)

2.1

These calculations are shown in the following table.

162

Chapter 6

Number of Cars Sold,

Probability

x

P(x)

0 1 2 3 4

.10 .20 .30 .30 .10 Total

3.

1.00

xP(x)

0.00 0.20 0.60 0.90 0.40

I,

I

-

f.L = 2.10

How do we interpret a mean of 2.1? This value indicates that, over a large number of Saturdays, John Ragsdale expects to sell a mean of 2.1 cars a day. Of course, it is not possible for him to sell exactly 2.1 cars on any particular Saturday. However, the expected value can be used to predict the arithmetic mean number of cars sold on Saturdays in the long run. For example, if John works 50 Saturdays during a year, he can expect to sell (50)(2.1) or 105 cars just on Saturdays. Thus, the mean is sometimes called the expected value. To find the variance we start by finding the difference between the value of the random variable and the mean. Next, we square these differences, and finally find the sum of the squared differences. A table is useful for systemizing the computations for the variance, which is 1.290.

Number of Cars Sold, x

Probability P(x)

(x- f.t)

(x- f.t)2

(x - f.t)2P(X)

0 1 2 3 4

.10 .20 .30 .30 .10

0-2.1 1 - 2.1 2 - 2.1 3 - 2.1 4 2.1

4.41 1.21 0.01 0.81 3.61

0.441 0.242 0.003 0.243 0.361 (J'2 = 1.290

r

t

Recall that the standard deviation, 0', is the positive square root of the variance. In this example, y;;:2 = Y1.290 = 1.136 cars. How do we interpret a standard deviation of ;.:. 1.136 cars? If salesperson Rita Kirsch also sold a mean of 2.1 cars on Saturdays, and the standard deviation in her sales was 1.91 cars, we would conclude that there is more variability in the Saturday sales of Ms. Kirsch than in those of Mr. Ragsdale (because 1.91 > 1.136).

Self~Review 6-2·

The Pizza Palace offers three sizes of cola-small, medium, and large-to go with its pizza. The colas are sold for $0.80, $0.90, and $1.20, respectively. Thirty percent of the orders are for small, 50 percent are for medium, and 20 percent are for the large sizes. Organize the price of the colas and the probability of a sale into a probability distribution. (a) (b) (c)

Is this a discrete probability distribution? Indicate why or why not. Compute the mean amount charged for a cola. What is the variance in the amount charged for a cola? The standard deviation?

Discrete Probability Distributions

163

Exercises 1.

Compute the mean and variance of the following discrete probability distribution.

x

2.

3.

P(x)

0

.2

1 2

.4 .3

3

.1

Compute the mean and variance of the following discrete probability distribution.

x

P(x)

2 8 10

.5 .3 .2

Three tables listed below show "random variables" and their "probabilities." However, only one of these is actually a probability distribution. a. Which is it?

x

P(x)

x

5 10 15 20

.3 .3 .2 .4

5 10 15 20

P(x)

x

P(x)

.1

5 10 15 20

.5 .3 -.2 .4

.3

.2 .4

b. Using the correct probability distribution, find the probability that x is: (1) Exactly 15. (2) No more than 10. (3) More than 5.

4.

5.

c. Compute the mean, variance, and standard deviation of this distribution. Which of these variables are discrete and which are continuous random variables? a. The number of new accounts established by a salesperson in a year. b. The time between customer arrivals to a bank ATM. ,:".... c. The number of customers in Big Nick's barber shop. d. The amount of fuel in your car's gas tank last week. e. The number of minorities on a jury. f. The outside temperature today. Dan Woodward is the owner and manager of Dan's Truck Stop. Dan offers free refills on all coffee orders. He gathered the following information on coffee refills. Compute the mean, variance, and standard deviation for the distribution of number of refills. Refills

Percent

0 1 2

30

3

6.

40 20 10

The director of admissions at Kinzua University in Nova Scotia estimated the distribution of student admissions for the fall semester on the basis of past experience. What is the expected number of admissions for the fall semester? Compute the variance and the standard deviation of the number of admissions.

164

Chapter 6

7.

8.

Admissions

Probability

1,000 1,200 1,500

.6 .3 .1

The following table lists the probability distribution for cash prizes in a lottery conducted at Lawson's Department Store.

Prize ($)

Probability

0 10 100 500

.45 .30 .20 .05

If you buy a single ticket, what is the probability that you win: a. Exactly $100? b. At least $1 O? c. No more than $100? d. Compute the mean, variance, and standard deviation of this distribution. You are asked to match three songs with the performers who made those songs famous. If you guess, the probability distribution for the number of correct matches is:

Probability Number correct

.333 0

.500 1

0 2

.167 3

What is the probability you get: a. Exactly one correct? b. At least one correct? c. Exactly two correct? d. Compute the mean, variance, and standard deviation of this distribution.

Binomial Probability Distribution The binomial probability distribution is a widely occurring discrete probability distribution. One characteristic of a binomial distribution is that there are only two possible outcomes on a particular trial of an experiment. For example, the statement in a true/false question is either true or false. The outcomes are mutually exclusive, meaning that the answer to a true/false question cannot be both true and false at the same time. As other examples, a product is classified as either acceptable or not acceptable by the quality control department, a worker is classified as employed or unemployed, and a sales call results in the customer either purchasing the product or not purchasing the product. Frequently, we classify the two possible outcomes as "success" and "failure." However, this classification does not imply that one outcome is good and the other is bad. Another characteristic of the binomial distribution is that the random variable is the result of counts. That is, we count the number of successes in the total number of trials. We flip a fair coin five times and count the number of times a head appears; we select 10 workers and count the number who are over 50 years of age, or we select 20 boxes of Kellogg's Raisin Bran and count the number that weigh more than the amount indicated on the package.

165

Discrete Probability Distributions

A third characteristic of a binomial distribution is that the probability of a success remains the same from one trial to another. Two examples are: • The probability you will guess the first question of a true/false test correctly (a success) is one half. This is the first "triaL" The probability that you will guess correctly on the second question (the second trial) is also one half, the probability of success on the third trial is one half, and so on. • If past experience revealed the swing bridge over the Intracoastal Waterway in Socastee was raised one out of every 20 times you approach it, then the probability is one-twentieth that it will be raised (a "success") the next time you approach it, one-twentieth the following time, and so on. The final characteristic of a binomial probability distribution is that each trial is independent of any other trial. Independent means that there is no pattern to the trials. The outcome of a particular trial does not affect the outcome of any other trial.

Characteristics of a binomial distribution

BINOMIAL PROBABILITY DISTRIBUTION 1. An outcome on each trial of an experiment is classified into one of two mutually exclusive categories-a success or a failure. 2. The random variable counts the number of successes in a fixed number of trials. 3. The probability of success and failure stay the same for each trial. 4. The trials are independent, meaning that the outcome of one trial does not affect the outcome of any other trial.

How Is a Binomial Probability Distribution Computed? To construct a particular binomial probability distribution, we use (1) the number of trials and (2) the probability of success on each trial. For example, if an examination at the conclusion of a management seminar consists of 25 multiple-choice questions, the number of trials is 25. If each question has five choices and only one choice is correct, the probability of success on each: trial is .20. Thus, the probability is .20 that a person with no knowledge of the subject matter will guess the answer to a question correctly. So the conditions of the binomial distribution just noted are met. The binomial probability distribution is computed by the formula:

BINOMIAL PROBABILITY DISTRIBUTION

[6-3]

where: C denotes a combination. n is the number of trials. x is the random variable defined as the number of successes. 'IT is the probability of a success on each trial.

We use the Greek letter 'IT (pi) to denote a binomial population parameter. Do not confuse it with the mathematical constant 3.1416.

166

Chapter 6

There are five flights daily from Pittsburgh via US Airways into the Bradford, Pennsylvania Regional Airport. Suppose the probability that any flight arrives late is .20. What is the probability that none of the flights are late today? What is the probability that exactly one of the flights is late today? We can use Formula (6-3). The probability that a particular flight is late is .20, so let = .20. There are five flights, so n = 5, and x, the random variable, refers to the number of successes. In this case a "success" is a plane that arrives late. Because there are no late arrivals x = o.

'TI'

P(O) = nCA'TI')X(1 - 'TI')n - x

= 5Co(.20)O(1 - .20)5 - ° = (1 )(1 )(.3277) = .3277 The probability that exactly one of the five flights will arrive late today is .4096, found by

P(1)

nCx('TI')X(1 - 'TI')n - x =

5Cl20)1(1 - .20)5 -

1

= (5)(.20)(.4096) = .4096

The entire probability distribution is shown in Table 6-2.

TABLE 6-2 Binomial Probability Distribution for n Number of Late Flights

= 5, 'IT = .20 Probability

0 2 3 4 5

.3277 .4096 .2048 .0512 .0064 .0003

Total

1.0000

The random variable in Table 6-2 is plotted in Chart 6-2. Note that the distribution of the number of late arriving flights is positively skewed.

P(x)

.40

-

.30

-

~ .20 :c co

-

'"'" Q) (.;) (.;)

-'" :::I

.c c..

e

.10 .00

I 0

4 3 Number of late flights

2

(x)

5

CHART 6-2 Binomial Probability Distribution for n = 5, 'TI' = .20

Discrete Probability Distributions

167

The mean (f.L) and the variance (u 2 ) of a binomial distribution can be computed in a "shortcut" fashion by:

I MEAN OF A BINOMIAL DISTRIBUTION

f.L

= n'IT

[6-4]

I

[6-5]

VARIANCE OF A BINOMIAL DISTRIBUTION

For the example regarding the number of late flights, recall that 'IT = .20 and n = 5. Hence: f.L = n'IT

u2

= (5)(.20) = 1.0

= n'IT(1

-

'IT)

= 5(.20)(1

- .20)

= .80

The mean of 1.0 and the variance of .80 can be verified from formulas (6-1) and (6-2). The probability distribution from Table 6-2 and detailed calculations are shown below.

Number of Late Flights, x

P(x)

0 1 2 3 4 5

0.3277 0.4096 0.2048 0.0512 0.0064 0.0003

xP(x)

0.0000 0.4096 0.4096 0.1536 0.0256 0.0015 f.L

x- J.I.

(x- J.I.)2

-1 0 1 2 3 4

1 0 1 4 9 16

(x- J.I.)2P(X)

0.3277 0 0.2048 0.2048 0.0576 0.0048

= 1.0000

0'2

= 0.7997

Binomial Probability Tables Formula (6-3) can be used to build a binomial probability distribution for any value of n and 'IT. However, for larger n, the calculations take more time. For convenience, the tables in Appendix A show the result of using the formula for various values of nand 'IT. Table 6-3 shows part of Appendix A for n 6 and various values of 'IT.

TABLE 6-3 Binomial Probabilities for n = 6 and Selected Values of 'IT

n=6 Probability x\'IT

.05

.1

.2

0 1 2 3 4 5 6

1.7351 .232 .031 .002 .000 .000

.531 .354 .098 .015 .001 .000 .000

.262 .393 .246 .082 .015 .002 .000

~

.3

.4

.118 _ .047 .303 .187 .324 .311 .185 .276 .060 .138 .010 .037 .001 .004

.5

.6

.7

.8

.9

.95

.016 .094 .234 .313 .234 .094 .016

.004 .037 .138 .276 .31.1 .187 .047

.001 .010 .060 .185 .324 .303 .118

.000 .002 .015 .082 .246 .393 .262

.000 .000 .001 .015 .098 .354 .531

.000 .000 .000 .002 .031 .232 .735

168

Chapter 6

EXiMjPI!.E~

Five percent of the worm gears produced by an automatic, high-speed Carter-Bell milling machine are defective. What is the probability that out of six gears selected at random none will be defective? Exactly one? Exactly two? Exactly three? Exactly four? Exactly five? Exactly six out of six?

S;QIUJfUOJNI

The binomial conditions are met: (a) there are only two possible outcomes (a particular gear is either defective or acceptable), (b) there is a fixed number of trials (6), (c) There is a constant probability of success (.05), and (d) the trials are independent. Refer to Table 6-3 for the probability of exactly zero defective gears. Go down the left margin to an x of O. Now move horizontally to the column headed by a 'IT of .05 to find the probability. It is .735. The probability of exactly one defective in a sample of six worm gears is .232. The complete binomial probability distribution for n = 6 and 'IT = .05 is: Number of Defective Gears,

Probability of Occurrence,

Number of Defective Gears,

Probability of Occurrence,

x

P(x)

x

P(x)

0

.735 .232 .031 .002

4 5

.000 .000 .000

2 3

6

Of course, there is a slight chance of getting exactly five defective gears out of six random selections. It is .00000178, found by inserting the appropriate values in the binomial formula: P(5) = 6C5(.05)5(.95)1 = (6)(.05)5(.95) = .00000178 For six out of the six, the exact probability is .000000016. Thus, the probability is very small that five or six defective gears will be selected in a sample of six. We can compute the mean or expected value of the distribution of the number defective: fL = n'IT = (6)(.05) (]2

=

n'IT(1 -

= 0.30

'IT) =

The MegaStat software will also compute the probabilities for a binomial distribution. At the top of page 169 is the output for the previous example. In MegaStat p is used to represent the probability of success rather than 'IT. The cumulative probability, expected value, variance, and standard deviation are also reported.

Self-Review 6-3

Eighty percent of the employees at the General Mills plant on Laskey Rd. have their bimonthly wages sent directly to their financial institution by electronic funds transfer. This is also called direct deposit. Suppose we select a random sample of seven recipients and count the number using direct deposit. (a) (b) (c) (d)

Does this situation fit the assumptions of'the binomial distribution? What is the probability that all seven employees use direct deposit? Use formula (6-3) to determine the exact probability that four of the seven sampled employees use direct deposit. Use Appendix A to verify your answers to parts (b) and (c).

Discrete Probability Distributions

169

x

_ 6

!D

[;§:51,§J!t:\il!bi~

flmtr'j,·oi

A,'"

fx

Al

6 n O,Q5·p

cumulative X o 1 2 3 4 5 6

pO<1 probabifitv 0.73509 0.73509 0,23213 0,96723 0,03054 0,99m 0,00214 0,99991 0,00008 1.00000 0,00000 1,00000 0,00000 1,00000 1.00000 0.300 expected value

0.285 variance 0.534 standard deviation

Appendix A is limited. It gives probabilities for n values from 1 to 15 and 7r values of .05, .10, ... , .90, and .95. A software program can generate the probabilities for any specified number of successes, given nand 7r. The Excel.output below shows the probability when n = 40 and 7r = .09. Note that the number of successes stops at 15 because the probability for each value between 16 and 40 is very close to O.

lidit "l£Iew

Elle

{nsert

'D[;§:51,§J~!l!bi~ D13 A

,..........

....

lools

Megastet

Q.ata

Illlca·oi A,'.

fx

11'"

:...........

0.010. 0.0001 0,001,

,................

.......

, "'\

R••d,

G

,

..........

......

H

,

.. ... ..... .....

............. ............ ............

.-=i

K

............

............

............ ............

......

............ ............ ,.....

........

.

............ .....

....

.... ..... .. .. ............. ............ ............

,........... ,............ ............ .....

....

.. ..... ...........

......

.. ...... ,.....

............

......

............

....... c....

;L ... ,,........... ............ ..........

! ...

...........

.......

,tput 'Rhpp"

F

E

..............

~~·.:. lIF;~;;~

............ ,.... .............................. ,....

FQ!met

..... ............ .....

, ...........

.... , ........ ,............ , ........... ,..........

............ ....

..... .........

.. ...........

...........

............. .. .....

c....

...... ,.....

,........... !.....

i····..

oj NUM

Several additional points should be made regarding the binomial probability distribution. 1.

If n remains the same but 7r increases from .05 to .95, the shape of the distribution changes. Look at Table 6-4 and Chart 6-3. The probabilities for a 7r of .05 are positively skewed. As 7r approaches .50, the distribution becomes symmetrical. As 7r goes beyond .50 and moves toward .95, the probability distribution becomes negatively skewed. Table 6-4 highlights probabilities for n = 10 and 7r of .05, .10, .20, .50, and. 70. The graphs of these probability distributions are shown in Chart 6-3.

170

Chapter 6

2.

If 'IT, the probability of success, remains the same but n becomes larger, the shape of the binomial distribution becomes more symmetrical. Chart 6-4 shows a situation where 'IT remains constant at .10 but n increases from 7 to 40.

TABLE 6-4 Probability of 0, 1,2, ... Successes for a 'IT of .05, .10, .20, .50, and .70 and an noflO ,-x\'IT

0 1 2 3 4 5 6 7 8 9 10

.05

.1

.599 .315 .075 .010 .001 .000 .000 .000 .000 .000 ..J!QQ.

.349 .387 .194 .057 .011 .001 .000 .000 .000 .000 .000

r--

,--

.2

.3

.4

.107 .268 .302 .201 .088 .026 .006 .001 .000 .000

.028 .121 .233 .267 .200 .103 .037 .009 .001 .000

~

~

.006 .040 .121 .215 .251 .201 .111 .042 .011 .002 .000

,--

.5

.6

.001 .010 .044 .117 .205 .246 .205 .117 .044 .010

.000 .002 .011 .042 .111 .201 .251 .215 .121 .040 .006

~

r--

.7

.8

.9

.95

.000 .000 :001 .009 .037 .103 .200 .267 .233 .121

.000 .000 .000 .001 .006 .026 .088 .201 .302 .268 .107

.000 .000 .000 .000 .000 .001 .011 .057 .194 .387 .349

.000 .000 .000 .000 .000 .000 .001 .010 .075 .315 .599

~

:40

-1--------.----'---'----'---'-------------

.30

-+-1------1+-------.-----------------

.20 - I - - I - - - - - - I + - : : - - - - - - - I + . . - - - - - - - W I - - - - - - . - 1 H - - .10 - I - - I - - - - - - I + - I - - - - - t + t i - - - - - - I - W H - - - - - t + l H - I I - - .00

--"-.LLJ"-'-'-'-'--'-'--'---LL.L.L-'-1-I-'-'--'-'---"..L.L.JL..O.J"-'-'-'-'-..I.--l-L-"--"-.L..LJ........'-LJ..---'-'-'--'-L.L..LJ.......~_

012345678910

012345678910

012345678910

012345678910

x

x

x

x

Successes

Successes

Successes

SUGcesses

012345678910

x

Successes

CHART 6-3 Graphing the Binomial Probability Distribution for a 'IT of .05, .10, .20, .50, and .70 and an n of 10

Exercises 9. In a binomial situation n = 4 and events using the binomial formula. a. x = 2 b. x = 3 10. In a binomial situation n = 5 and events using the binomial formula.

'IT

=

.25. Determine the probabilities of the following

'IT

=

.40. Determine the probabilities of the following

a. x = 1 b. X= 2 11. Assume a binomial distribution where n = 3 and 'IT = .60. a. Refer to Appendix A, and list the probabilities for values of x from 0 to 3. b. Determine the mean and standard deviation of the distribution from the general definitions given in formulas (6-1) and (6-2).

171

Discrete Probability Distributions

n=7

n= 12

n=40

n=20

.40 .30 .20 .10 .00

I I

01234

L.

II

I I

01234567

I

I

012345678

.I

I.

I • I

01234567891011

Number of successes (x)

CHART 6-4 Chart Representing the Binomial Probability Distribution for a 'IT of.10 and an n of7, 12,20, and 40 12. Assume a binomial distribution where n = 5 and 'IT = .30. a. Refer to Appendix A, and list the probabilities for values of x from 0 to 5. b. Determine the mean and standard deviation of the distribution from the general definitions given in formulas (6-1) and (6-2). 13. An American Society of Investors survey found 30 percent of individual investors have used a discount broker. In a random sample of nine individuals, what is the probability: a. Exactly two of the sampled individuals have used a discount broker? b. Exactly four of them have used a discount broker? c. None of them have used a discount broker? 14. The United States Postal Service reports 95 percent of first class mail within the same city is delivered within two days of the time of mailing. Six letters are randomly sent to different locations. a. What is the probability that all six arrive within two days? b. What is the probability that exactly five arrive within two days? c. Find the mean number of letters that will arrive within two days. d. Compute the variance and standard deviation of the number that will arrive within two days. 15. The industry standards suggest that 10 percent of new vehicles require warranty service within the first year. Jones Nissan in Sumter, South Carolina, sold 12 Nissans yesterday. a. What is the probability that none of these vehicles requires warranty service? b. What is the probability exactly one of these vehicles requires warranty service? c. Determine the probability that exactly two of these vehicles require warranty service. d. Compute the mean and standard deviation of this probability distribution. 16. A telemarketer makes six phone calls per hour and is able to make a sale on 30 percent of these contacts. During the next two hours, find: a. The probability of making exactly four sales. b. The probability of making no sales. c. The probability of making exactly two sales. d. The mean number of sales in the two-hour period. 17. A recent survey by the American Accounting Association revealed 23 percent of students graduating with a major in accounting select public accounting. Suppose we select a sample of 15 recent graduates. a. What is the probability two select public accounting? b. What is the probability five select public accounting? c. How many graduates would you expect to select public accounting?

172

Chapter 6

18. Suppose 60 percent of all people prefer Coke to Pepsi. We select 18 people for further study. a. How many would you expect to prefer Coke? b. What is the probability 10 of those surveyed will prefer Coke? c. What is the probability 15 prefer Coke?

Cumulative Binomial Probability Distributions We may wish to know the probability of correctly guessing the answers to 6 or more true/false questions out of 10. Or we may be interested in the probability of selecting less than two defectives at random from production during the previous hour. In these cases we need cumulative frequency distributions similar to the ones developed in Chapter 2. See page 38. The following example will illustrate.

EXAMPLE

A recent study by the American Highway Patrolman's Association revealed that 60 percent of American drivers use their seat belts. A sample of 10 drivers on the Florida Turnpike is selected. 1. 2.

SOLUTION

What is the probability that exactly 7 are wearing seat belts? What is the probability that 7 or fewer of the drivers are wearing seat belts?

This situation meets the binomial: requirements, namely: • A particular driver either is wearing a seat belt or is not. There are only two possible outcomes. • There is a fixed number of trials-1 0 in this case, because 10 drivers are checked. • The probability of "success" (wearing a seat belt) is the same from driver to driver: 60 percent. • The trials are independent. If the fourth driver selected in the sample is wearing a seat belt, for example, it has no effect on whether the fifth driver selected is wearing a seat belt. 1.

To find the likelihood of exactly 7 drivers, we use Appendix A. Locate the page for n = 10. Next find the column for 'IT = .60 and the row for x = 7. The value is .215. Thus, the probability of finding 7 out of 10 drivers in the sample wearing their seat belts is .215. This is often written as follows:

P(x = 71n = 10 and

= .60) = .215 where x refers to the number of successes, n the number of trials, and 'IT the prob-

2.

'IT

ability of a success. The bar "I" means "given that." To find the probability that 7 or fewer of the drivers will be wearing seat belts, we apply the special rule of addition, formula (5-2), from Chapter 5. Because the events are mutually exclusive, we determine the probability that of the 10 drivers stopped, none was wearing a seat belt, 1 was wearing a seat belt, 2 were wearing a seat belt, and so on up to 7 drivers. The probabilities of the eight possible outcomes are then totaled. From Appendix A, n = 10, and 'IT = .60.

P(X:5 71n = 10 and

'IT

= .60) = P(x = 0) + P(x = 1) + P(x = 2) + P(x = 3) =

+ P(x = 4) + P(x = 5) + P(x 6) + P(x = 7) .000 + .002 + .011 + .042 + .111 + .201 + .251 + .215

=

.833

173

Discrete Probability Distributions

So the probability of stopping 10 cars at random and finding 7 or fewer of the drivers wearing their seat belts is .833. This value may also be determined, with less computation, using the complement rule. First, find P(x > 7) given that n = 10 and 'IT = .60. This probability is .167, found by P(x 8) + P(x = 9) + P(x = 10) = .121 + .040 + .006. The probability that x s 7 is equal to 1 - P(x> 7), so P(x s 7) = 1 - .167 = .833, the same as computed above.

Self-Review 6-4

For a case where n

= 4 and 'IT = .60, determine the probability that:

(a) x = 2. (b) x:s; 2. (c) x> 2.

Exercises 19. In a binomial distribution n = 8 and

a. 20.

21.

22.

23.

24.

X=

'IT

= .30. Find the probabilities of the following events.

2.

b. x:s; 2 (the probability that x is equal to or less than 2). c. x;:: 3 (the probability that x is equal to or greater than 3). In a binomial distribution n = 12 and 'IT = .60. Find the following probabilities. a. x = 5. b. x:s; 5. c. x;:: 6. In a recent study 90 percent of the homes in the United States were found to have largescreen TVs. In a sample of nine homes, what is the probability that: a. All nine have large-screen TVs? b. Less than five have large-screen TVs? c. More than five have large-screen TVs? d. At least seven homes have large-screen TVs? A manufacturer of window frames knows from long experience that 5 percent of the production will have some type of minor defect that will require an adjustment. What is the probability that in a sample of 20 window frames: a •. None will need adjustment? b. At least one will need adjustment? c. More than two will need adjustment? The speed with which utility companies can resolve problems is very important. GTC, the Georgetown Telephone Company, reports they can resolve customer problems the same day they are reported in 70 percent of the cases. Suppose the 15 cases reported today are representative of all complaints. a. How many of the problems would you expect to be resolved today? What is the standard deviation? b. What is the probability 10 of the problems can be resolved today? c. What is the probability 10 or 11 of the problems can be resolved today? d. What is the probability more than 10 of the problems can be resolved today? Steele Electronics, Inc. sells expensive brands of stereo equipment in several shopping malls throughout the northwest section of the United States. The Marketing Research De- . partment of Steele reports that 30 percent of the customers entering the store that indicate they are browsing will, in the end, make a purchase. Let the last 20 customers who enter the store be a sample. a. How many of these customers would you expect to make a purchase? b. What is the probability that exactly five of these customers make a purchase? c. What is the probability ten or more make a purchase? d. Does it seem likely at least one will make a purchase?

174

Chapter 6

Poisson Probability Distribution The Poisson probability distribution describes the number of times some event occurs during a specified interval. The interval may be time, distance, area, or volume. The distribution is based on two assumptions. The first assumption is that the probability is proportional to the length of the interval. The second assumption is that the intervals are independent. To put it another way, the longer the interval the larger the probability, and the number of occurrences in one interval does not affect the other intervals. This distribution is also a limiting form of the binomial distribution when the probability of a success is very small and n is large. It is often referred to as the "law of improbable events," meaning that the probability, 1f, of a particular event's happening is quite small. The Poisson distribution is a discrete probability distribution because it is formed by counting. In summary, a Poisson probability distribution has these characteristics:

POISSON PROBABILITY DISTRIBUTION 1. The random variable is the number of times some event occurs during a defined interval. 2. The probability of the event is proportional to the size of the interval. 3. The intervals which do not overlap are independent. This distribution has many applications. It is used as a model to describe the distribution of errors in data entry, the number of scratches and other imperfections in newly painted car panels, the number of defective parts in outgoing shipments, the number of customers waiting to be served at a restaurant or waiting to get into an attraction at Disney World, and the number of accidents on 1-75 during a three-month period. The Poisson distribution can be described mathematically by the formula:

POISSON DISTRIBUTION

P(x) = J.Lxe- IL xl

[6-6]

where: J.L (mu) is the mean number of occurrences (successes) in a particular interval.

e is the constant 2.71828 (base of the Naperian logarithmic system).

x is the number of occurrences (successes). P(x) is the probability for a specified value of x. The variance of the Poisson is also equal to its mean. If, for example, the probability that a check cashed by a bank will bounce is .0003, and 10,000 checks are cashed, the mean and the variance for the number of bad checks is 3.0, found by J.L = n1f = 10,000(.0003) = 3.0. Recall that for a binomial distribution there is a fixed number of trials. For example, for a four-question multiple-choice test there can only be zero, one, two, three, or four successes (correct answers). The random variable, x, for a Poisson distribution, however, can assume an infinite number of values-that is, 0, 1, 2, 3, 4, 5, .... However, the probabilities become very small after the first few occurrences (successes). To illustrate the Poisson probability computation, assume baggage is rarely lost by Northwest Airlines. Most flights do not experience any mishandled bags; some have one bag lost; a few have two bags lost; rarely a flight will have three lost bags; and so on. Suppose a random sample of 1,000 flights shows a total of 300 bags were

175

Discrete Probability Distributions

lost. Thus, the arithmetic mean number of lost bags per flight is 0.3, found by 300/1,000. If the number of lost bags per flight follows a Poisson distribution with f1 = 0.3, we can compute the various probabilities using formula (6-6):

P(x)

=

f.l!e-I'xl

For example, the probability of not losing any bags is: o3 P(O) = (0.3)ci7- . ) = 0.7408

In other words, 74 percent of the flights will have no lost baggage. The probability of exactly one lost bag is: 0.2222

P(1)

Thus, we would expect to find exactly one lost bag on 22 percent of the flights. Poisson probabilities can also be found in the table in Appendix C.

Recall from the previous illustration that the number of lost bags follows a Poisson distribution with a mean of 0.3. Use Appendix C to find the probability that no bags will be lost on a particular flight. What is the probability exactly one bag will be lost on a particular flight? When should the supervisor become suspicious that a flight is having too many lost bags? Part of Appendix C is repeated as Table 6-5. To find the probability of no lost bags, locate the column headed "0.3" and read down that column to the row labeled "0." The probability is .7408. That is the probability of no lost bags. The probability of one lost bag is .2222, which is in the next row of the table, in the same column. The probability of two lost bags is .0333, in the row below; for three lost bags it is .0033; and for four lost bags it is .0003. Thus, a supervisor should not be surprised to find one lost bag but should expect to see more than one lost bag infrequently.

TABLE 6-5 Poisson Table for Various Values of f1 (from Appendix C)'i f1

x

0.1

o I···· 0.9048 .

1 2 3 4 5 6 7

0.0905 0.0045 0.0002 0.0000 0.0000 0.0000 0.0000

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

0.8187 0.1637 0.0164 0.0011 0.0001 0.0000 0.0000 0.0000

10.74081 0.2222 0,0333 0,0033 0.0003 0.0000 0.0000 0.0000

0.6703 0.2681 0.0536 0.0072 0.0007 0.0001 0.0000 0.0000

0.6065 0.3033 0.0758 0,0126 0.0016 0.0002 0.0000 0.0000

0.5488 0,3293 0.0988 0.0198 0.0030 0.0004 0.0000 0.0000

0.4966 0.3476 0.1217 0.0284 0.0050 0.0007 0.0001 0.0000

0.4493 0.3595 0.1438 0.0383 0.0077 0.0012 0.0002 0.0000

0.4066 0.3659 0.1647 0.0494 0.0111 0.0020 0.0003 0.0000

These probabilities can also be found using the MINITAB system. The commands necessary are reported at the end of the chapter.

176

Chapter 6

The Poisson probability distribution is always positively skewed. Also, the Poisson random variable has no specific upper limit. The Poisson distribution for the lost bags illustration, where fL = 0.3, is highly skewed. As fL becomes larger, the Poisson distribution becomes more symmetrical. For example, Chart 6-5 shows the distributions of the number of transmission services, muffler replacements, and oil changes per day at Avellino's Auto Shop. They follow Poisson distributions with means of 0.7,2.0, and 6.0, respectively.

, P(x) Q) (.)

.50

p.=0.7

j.A.=2.0

p.=6.0

c:

.40 ~ ::::I (.)

g .30 '6

~

.20

~ .10 .Q

e

c- .00

o 1 234 Transmission services

~

01234567 Muffler replacements

I

o1

1111111

I •

2 3 4 5 6 7 8 9 10 11 12 13 Oil changes

Number of occurrences CHART 6-5 Poisson Probability Distributions for Means of 0.7, 2.0, and 6.0

Only fL needed to construct Poisson

Self-Review 6-5

In summary, the Poisson distribution is actually a family of discrete distributions. All that is needed to construct a Poisson probability distribution is the mean number of defects, errors, and so on-deSignated as fL. From actuary tables the Washington Insurance Company determined the likelihood that a manage 25 will die within the next year is .0002. If Washington Insurance sells 4,000 policies to 25-year-old men this year, what is the probability they will pay on exactly one policy?

Discrete Probability Distributions

177

Exercises 25. In a Poisson distribution J.L = 0.4. a. What is the probability that x = b. What is the probability that x > 26. In a Poisson distribution J.L = 4. a. What is the probability that x = b. What is the probability that x ::;; 27.

28.

29. 30.

O? O?

2? 2? c. What is the probability that x > 2? Ms. Bergen is a loan officer at Coast Bank and Trust. From her years of experience, she estimates that the probability is .025 that an applicant will not be able to repay his or her installment loan. Last month she made 40 loans. a. What is the probability that 3 loans will be defaulted? b. What is the probability that at least 3 loans will be defaulted? Automobiles arrive at the Elkhart exit of the Indiana Toll Road at the rate of two per minute. The distribution of arrivals approximates a Poisson distribution. a. What is the probability that no automobiles arrive in a particular minute? b. What is the probability that at least one automobile arrives during a particular minute? It is estimated that 0.5 percent of the callers to the Customer Service department of Dell, Inc. will receive a busy signal. What is the probability that of today's 1,200 callers at least 5 received a busy signal? Textbook authors and publishers work very hard to minimize the number of errors in a text. However, some errors are unavoidable. Mr. J. A. Carmen, statistics editor, reports that the mean number of errors per chapter is O.B. What is the probability that there are less than 2 errors in a particular chapter?

Chapter Outline I. A random variable is a numerical value determined by the outcome of an experiment. II. A probability distribution is a listing of all possible outcomes of an experiment and the probability associated with each outcome.

A. A discrete probability distribution can assume only certain values. The main features are: 1. The sum of the probabilities is 1.00. 2. The probability of a particular outcome is between 0.00 and 1.00. 3. The outcomes are mutually exclusive. B. A continuous distribution can assume an infinite number of values within a specific range.

III. The mean and variance of a probability distribution are computed as follows.

A. The mean is equal to: IL

= 2:[xP(x)]

[6-1]

B. The variance is equal to:

[6-2] IV. The binomial distribution has the following characteristics.

A. Each outcome is classified into one of two mutually exclusive categories. B. The distribution results from a count of the number of successes in a fixed number of trials.

C. The probability of a success remains the same from trial to trial.

D. Each trial is independent. E. A binomial probability is determined as follows:

P(x) = nCx'fl"< (1

'IT)n - x

[6-3]

F. The mean is computed as: IL = n'IT

[6-4]

G. The variance is

[6-5]

178

Chapter 6

V. The Poisson distribution has the following characteristics. A. It describes the number of times some event occurs during a specified interval.

B. C. D. E.

The probability of a "success" is proportional to the length of the interval. Nonoverlapping intervals are independent. It is a limiting form of the binomial distribution when n is large and 'IT is small. A Poisson probability is determined from the following equation:

P(x)

= f.Lxe - IL

[6-6]

x!

F. The mean and the variance are equal.

Chapter Exercises 31. What is the difference between a random variable and a probability distribution? 32. For each of the following indicate whether the random variable is discrete or continuous. a. The length of time to get a haircut. b. The number of cars a jogger passes each morning while running.

c. The number of hits for a team in a high school girls' softball game. d. The number of patients treated at the South Strand Medical Center between 6 and 10 P.M. each night.

e. The number of miles your car traveled on the last fill-up. f. The number of customers at the Oak Street Wendy's who used the drive-through facility. g. The distance between Gainesville, Florida, and all Florida cities with a population of at least 50,000.

33. What are the requirements for the binomial distribution? 34. Under what conditions will the binomial and the Poisson distributions give roughly the same results?

35. Seaside Villas, Inc. has a large number of villas available to rent each month. A concern of management is the number of vacant villas each month. A recent study revealed the percent of the time that a given number of villas are vacant. Compute the mean and standard deviation of the number of vacant villas.

Number of vacant Units

Probability

o

.1

1

.2 .3 .4

2

3

36. An investment will be worth $1,000, $2,000, or $5,000 at the end of the year. The probabilities of these values are .25, .60, and .15, respectively. Determine the mean and variance of the worth of the investment. 37. The vice president of human resources. at Lowes is studying the number of on-the-job accidents over a period of one month. He developed the following probability distribution. Compute the mean, variance, and standard deviation of the number of accidents in a month.

Number of Accidents

o 1

2 3 4

Probability .40 .20 .20

.10 .10

Discrete Probability Distributions

179

38. Croissant Bakery, Inc. offers special decorated cakes for birthdays, weddings, and other occasions. They also have regular cakes available in their bakery. The following table gives the total number of cakes sold per day and the corresponding probability. Compute the mean, variance, and standard deviation of the number of cakes sold per day.

Number of Cakes Sold in a Day

12 13 14 15

Probability .25 .40 .25

.10

39. A recent survey reported that the average American adult eats ice cream 28 times per year.

40.

41.

42.

43.

44.

45.

46.

The same survey indicated 33 percent of the respondents said vanilla was their favorite flavor of ice cream. Nineteen percent said chocolate was their favorite flavor. There are 10 customers waiting for ice cream at